U.S. markets showed strong momentum on Monday’s open after the U.S. and China agreed to a truce in their trade war over the weekend, with President Donald Trump saying he would not raise tariffs at the start of the new year as he had previously threatened to do.

The major indexes backed off their highs after Treasury Secretary Mnuchin confirmed the change in tone, but did suggest that Trump retained all options if progress was not satisfactory.

The small-caps struggled but also closed higher despite making a midday trip into negative territory.

The Nasdaq soared 1.5% after peaking at a morning high of 7,486.

Lower and fresh resistance at 7,450-7,500 and the 50-day moving average was challenged but held with a close above 7,525 and the 200-day moving average signaling additional momentum.

The S&P 500 was higher by 1.1% following the opening surge to 2,800.

Fresh resistance at 2,800-2,825 held with the close above the 50-day and 200-day moving averages being a bullish development.

The Dow rose 1.1% after trading to a session peak of 25,980.

Fresh and lower resistance at 25,800-26,000 was cleared and held with the close above the 50-day moving average signaling additional strength.

The Russell 2000 gained 1% following the opening push to 1,553. Early November resistance at 1,550-1,560 and the 50-day moving average held with a close above the latter getting 1,580-1,600 in play.

Energy and Technology led sector strength after rising 2.2%. Consumer Discretionary and Materials advanced 1.9% and 1.8%.

Healthcare was the only sector laggard after giving back 0.5%.

Global Economy – European markets closed higher following positive global trade developments, after Washington and Beijing effectively agreed to pause their trade war and work toward a more comprehensive pact.

Germany’s DAX 30 jumped 1.9% and UK’s FTSE 100 rose 1.2%. The Belgium20 climbed 1.1% while France’s CAC 40 and the Stoxx 600 Europe advanced 1%.

The UK November Markit manufacturing PMI rose 2.0 to 53.1, topping forecasts of 51.7.

The Eurozone November Markit manufacturing PMI was revised upward to 51.8 from the previously reported 51.5.

Asian markets showed strong gains following the meeting between President Trump and President Jinping in Argentina, with China pledging to purchase more goods from the U.S. and open its market, and the U.S. postponing plans to raise tariffs on Chinese goods.

China’s Shanghai and Hong Kong’s Hang Seng surged 2.6%. Australia’s S&P/ASX 200 and South Korea’s Kospi rallied 1.8% while Japan’s Nikkei gained 1%.

Japan Q3 capital spending rose 4.5% year-over-year, versus expectations of 8.5%. Q3 capital spending ex-software rose 2.5%, missing estimates of 10.7%.

PMI Manufacturing Index for November checked in at 55.3, matching estimates. The report noted solid improvement in operating conditions across the manufacturing sector.

The new orders component rose to 56.7 from 56.5 previously. Foreign demand picked up, with new export orders expanding at the fastest pace for nine months.

Additionally, the rate of job creation was sharp and the second-fastest in the year-to-date.

November ISM Manufacturing Index was at 59.3, topping estimates of 57.2. The employment component rose to 58.4 from 56.8 while new orders jumped to 62.1 from 57.4.

New export orders were steady at 52.2 while imports slipped to 53.6 from 54.3. Meanwhile, prices paid dove to 60.7 from 71.6.

October Construction Spending was down 0.1%, missing forecasts for a rise of 0.3% for the month. Residential construction declined 0.5% from unchanged.

Nonresidential spending edged up 0.1% versus -0.2%. Private construction spending dropped 0.4% following the 0.4% gain the prior month. Public spending increased 0.8% from -1.5%.

Atlanta Fed’s Q4 GDPNow estimate was boosted to 2.8% from 2.6%, previously.

Market Sentiment – Fed Vice Chairman Randal Quarles said the Fed should be promoting efficiency in the financial sector as well as its safety and soundness, while nothing the Fed has proposed so far weakens the overall ability of large banks to absorb losses.

Quarles said the neutral rate is not a terribly precise concept, and most useful when clear in which direction monetary policy should move.

He said where the Fed ends up in a range of estimates of neutral will depend on the performance of the economy. He added the performance of the economy would indicate the Fed is doing a good job.

Fed Governor Lael Brainard said market functioning has been orderly during the recent volatility. However, she noted some concern that financial stability can be threatened by sharp market moves and the risks posed by the high speed transmission of price and liquidity shocks.

Brainard said liquidity is not being hurt by policy normalization, which is now well underway. She added the economy is at or beyond full employment, with inflation holding around 2%.

Dallas Fed Robert Kaplan said he is paying attention to the global slowdown and expects U.S. growth to slow next year, but he’s focused on not being pre-determined about the future path of rates.

He said analysts are in a more challenging period in their efforts to normalize monetary policy.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after trading to a high of $115.88.

Lower resistance at $115.50-$116 was cleared and held with a move above the latter being a continuing bullish signal.

Rising support is at $115.50-$115.

Market Analysis – The Spider Small-Cap 600 ETF (SLY) was up for the 3rd time in 4 sessions after making a run to $69.54.

Lower resistance at $69.50-$70 and the 50-day moving average held with continued closes above the latter being a bullish signal.

Rising support is at $68-$67.50.

A close back below $67 would likely signaling additional selling pressure towards $66-$65 and late October lows.

RSI is in a slight uptrend with resistance at 55. Continued closes above this level would signal additional strength towards 60-70. Support is at 45-40.

Bitcoin Investment Trust (GBTC) fell for the 3rd-straight session after tapping a low of $4.62.

Near-term support at $4.75-$4.50 held into the close with a move below the latter being a continuing bearish development.

Resistance is at $5-$5.25.

RSI is is in a downtrend with support at 30.

A move above below this level could lead to a continued backtest to 25. Resistance is at 35-40.

All the best,
Roger Scott.