S&P futures higher by 1.7%: Trump and China President Xi agree to trade war truce; will delay rate increase to 25% from 10% on $200 billion tariff tranche for 90 days.

Trump will not raise the 10% tariff rate on $200 billion of Chinese goods to 25% on January 1 in order to allow further time to negotiate a settlement of structural trade issues between the two countries.  If an acceptable deal is not struck in the next 90 days, then the tariff rate will reportedly go to 25%.

The press has pointed out this morning that there are different narratives in the U.S. and China surrounding the Buenos Aires "agreement."  For instance, China has not publicized a specific 90-day time window.

The different narratives, it has been said, underscore the fundamental differences between the two sides that could make it extremely difficult to resolve the trade differences in the next 90 days.  Accordingly, there are contentions that the "agreement" is just a kick-the-can-down-the-road approach and that the stock market's positive takeaway from the "agreement" is an overreaction.

In the end, it will be actions -- or the lack of -- that speak louder than the hopeful-sounding words out of Buenos Aires. It’s fair to say now that investors are relieved at least that things didn't go further south at the dinner meeting with respect to trade issues.

That relief is reflected in the futures market.  The S&P futures are up 40 points and are trading 1.3% above fair value.  The Nasdaq 100 futures are up 148 points and are trading 2.1% above fair value.  The Dow Jones Industrial Average futures are up 437 points and are trading 1.7% above fair value.

There is a risk-on mindset for sure, which has also underpinned foreign markets.  China's Shanghai Composite surged 2.6% and Germany's DAX Index is currently up 2.1%.

The strong indications are apt to be fueling a FOMO on further gains and specifically a year-end rally, the prospects of which have seemingly been given new life in the past week with some seemingly dovish-sounding remarks from Fed Chairman Powell and  Trump's characterization of the closely-watched dinner meeting.

It is important to realize, however, that nothing has actually been settled on the policy path or China trade fronts, which is why the market could see a STFR mindset down the line.

Secondly, there is a good bit of attention being paid to the oil market today as well.  WTI crude futures are up 4.7% to $53.34 per barrel, bolstered by the risk-on mentality and news that the Canadian province of Alberta will be cutting its production by 325,000 barrels per day in an effort to curb excess supply.  On a related note, Qatar has announced plans to withdraw from OEPC.

Alberta's move comes just ahead of this week's OPEC+ meeting where it is thought an agreement will also be struck to lower production targets.  

That meeting is just one of several important events that will take place this week.  Fed Chairman Powell will appear before the Joint Economic Committee on Wednesday to provide his semi-annual testimony and the Employment Situation Report for November will be released on Friday.

In a statement from the White House:

"Trump has agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% at this time. China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries. China has agreed to start purchasing agricultural product from our farmers immediately."

This will likely be positive for the following stocks: BA, GE, CAT, DE, UTX, BG, ANDE, ADM, LNG, GLNG, GLOG, TELL, EOG, OXY, XOM, CVX, COP.

"Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both parties agree that they will endeavor to have this transaction completed within the next 90 days (deadline March 1, 2019). If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%."

The products in $200 billion tariff tranche:

Food ingredients, auto parts, art, chemicals, paper products, apparel, air conditioners, toys, furniture, and electronics (iPhones, smartwatches excluded).

This news is likely positive for: DWDP, KSS, WMT, TGT, NKE, SKX, KS, CLW, KHC, MGA, LEA, F, AAP, XRT, M, JWN, BBY, BID, AAON, FIX, LZB, MAT, HAS, AAPL, FIT.

G20 OIL:

Members at the G20 summit supported the idea of WTO reforms in official communique. This stance was echoed in the minutes released from the summit:

“We welcome the strong global economic growth while recognizing it has been increasingly less synchronized between countries and some of the key risks, including financial vulnerabilities and geopolitical concerns, have partially materialized. We also note current trade issues. We reaffirm our pledge to use all policy tools to achieve strong, sustainable, balanced and inclusive growth, and safeguard against downside risks, by stepping up our dialogue and actions to enhance confidence. Monetary policy will continue to support economic activity and ensure price stability, consistent with central banks' mandates. Fiscal policy should rebuild buffers where needed, be used flexibly and be growth-friendly, while ensuring public debt is on a sustainable path. Continued implementation of structural reforms will enhance our growth potential. We reaffirm the exchange rate commitments made by the Finance Ministers and Central Bank Governors last March. We endorse the Buenos Aires Action Plan."


SEMIS:

In addition to the above commentary, in a statement from the White House, China President Xi is open to approving previously unapproved QCOM -NXP (NXPI) deal should it again be presented to him. This potential M&A headline will likely spark the semi’s as the overhead risk appears to have subsided.

 

Wednesday, December 5, has been declared a national day of mourning.  Per tradition, the market will be closed that day.