• US stocks gap higher over the weekend
  • Markets react positively to US-China de-escalation
  • More from Mnuchin: “very bullish on US stocks”

The news over the weekend that the US and China had called a truce on their trade war has caused a noticeable reaction in the markets with stock futures opening sharply higher last night. The US500 opened around 20 points above Friday’s closing level, producing a large gap that is greater in size than the entire trading range on the final session of last week! 

The reason for the gap appears to be the latest developments in the US China trade war, with both sides taking steps to back down from the conflict over the weekend. The announcement that the US has halted plans to impose $150b worth of tariffs on Chinese imports is a significant symbolic gesture, and led to Treasury Secretary Mnuchin declaring yesterday that the trade war has been put “on hold”. Beijing has chosen to reciprocate the gesture by promising to “significantly increase” purchases of US farm exports and energy, and it appears that the world’s two largest economies are jointly backing down after a series of tit-for-tat escalations in recent months. 

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 The US500 jumped higher with a 20 point gap when it re-opened, with price reacting positively to the US-China de-escalation. Source: xStation

Mnuchin has been in the spotlight quite a bit lately and this afternoon he also conducted an interview on CNBC. His most noteworthy comments were that he is “very bullish” on US stocks and that “a strong US dollar is good for the US in the long-term”. Other selected comments are as follows:

  • Will increase US exports to China significantly 
  • Both US and China have agreed to suspend tariffs
  • Economic growth this year to be very strong
  • There is still some significant, open issues over NAFTA
  • Could consider a possible “skinny” deal instead of full-on NAFTA agreement

Out of these remarks, the ones relating to NAFTA are interesting as focus from a trade perspective may now turn to this in the coming days and weeks. 

The US500 has now broken out of a consolidation pattern that contained price last week, but longs will want to see a clean move and close above 2740 before they can expect a sustained push higher. If this occurs then a retest of 2806 and maybe even 2880 is possible but a failure to break above 2740 would offer the bears a chance to close the gap back to Friday’s ending level of 2712. 

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 The US500 has made an attempted break higher but needs to move above 2740 before a sustained rise can occur. Source: xStation