U.S. markets rallied and closed higher for a second-straight session after comments made by Chinese President Xi Jinping. His remarks suggested a lesser aggressive approach with respect to trade and tariffs, which helped to ease concerns about an escalating conflict between the world’s two largest economies.

However, volatility remained slightly heightened and above a key level of support ahead of tomorrow’s FOMC minutes.

The Nasdaq jumped 2.1% after make an intraday push to 7,117 and its 100-day moving average while recovering the 7,000 level in the process.

The Russell 2000 surged 1.9% after tapping an intraday high of 1,548 while closing back above its 50-day moving average for the first time in a dozen sessions.

The Dow rallied 1.8% on its run to 24,511 to regain the 24,000 level with last week’s peak of 25,611 the next key hurdle to clear. The S&P 500 soared 1.7% after testing a high of 2,665 but remains roughly 2% away from clearing its 50-day moving average.

Energy zoomed 3.3% to lead sector strength. Technology was higher by 2.5% and Materials were up 2.1%. Utilities and Real Estate were the only lagging sectors after falling 0.8% and 0.7%, respectively.

Global Economy – European markets following positive comments about the economy. Germany’s DAX 30 was higher by 1.1% and UK’s FTSE 100 rallied 1%. The Stoxx 600 Europe and France’s CAC 40 were higher by 0.8%. The Belgium20 climbed 0.5%.

ECB Governing Council member Nowotny said the current Eurozone economy is clearly in the middle of a strong and broad-based cyclical upswing and that now is the time for a gradual normalization of monetary policy.

UK March BRC sales like-for-like unexpectedly rose 1.4% year-over-year, topping expectations for a decline of 0.3% and the biggest increase in six months.

Asian markets showed continued strength with China’s Shanghai and Hong Kong’s Hang Seng surging 1.7%. Australia’s S&P/ASX 200 advanced 0.8% and Japan’s Nikkei gained 0.5%. South Korea’s Kospi was up 0.3%.

Chinese President Xi pledged a new phase of opening up in his keynote and warned against returning to a Cold War mentality amid trade disputes.

Xi pledged to increase imports, lower foreign-ownership limits on manufacturing and expand protection to intellectual property.

Japan March machine tool orders rose 28.1% year-over-year, the 17th consecutive month orders have gained.

NFIB Small Business Optimism Index fell 2.7% to 104.7 in March.

The Producer Price Index rose 0.3% in March, with the core up 0.3%, both of which were slightly higher than forecast.

Redbook Store Sales were up 2.9% for the year in the week ending March 7th.

Wholesale Trade climbed 1% in February, below expectations for a rise of 1.1%, with sales also up 1%.

U.S. chain store sales were up 2.8% to 120 in the week ending April 7th, after dropping 1.9% the prior week.

Atlanta Fed’s Q1 GDPNow estimate was cut to 2%, down from 2.3% previously. The nowcast of first-quarter real consumer spending growth fell from 1.3% to 1.1% and the nowcast of first-quarter real private fixed investment growth fell from 5.3% to 4.5%.

Market Sentiment – Dallas Fed Robert Kaplan addressed trade and tariffs as expected, expressing hope that very few, if any, of suggested tariffs by the U.S. and China will actually get implemented as its clearly in the interest of both sides to have a constructive trading relationship.

That said, he thought there were legitimate issues to be discussed, though likely negotiated behind the scenes.

Kaplan was optimistic on U.S. growth, though he saw it trending down to 1.75% by 2020, while inflation was expected to gradually move to 2% and the jobless rate move lower. He still sees 3 hikes this year as the base case.

The Dallas Fed President is also keeping a close eye on the yield curve and added he won’t be blindly advocating further rate hikes if the curve keeps flattening.

He worried that the yield curve could be suggesting a sluggish pace of GDP growth ahead, and noted that the history of inverted yield curves is not positive.

Kaplan is also concerned that some of the harsh trade talk could be undermining relations with Mexico, which may have already impacted politics there ahead of July elections, and which might make it harder to trade with Mexico in the future.

The iShares 20+ Year Treasury Bond ETF (TLT) slipped for the first time in three sessions after trading down to $120.78.

Support at $120.50-$120 held with risk to $119.50-$119 and the 50-day moving average on a close below the latter. Resistance remains at $121.50-$122 and the 100-day moving average.

Market Analysis – The PowerShares QQQ (QQQ) topped out at $161.73 with near-term resistance at $162-$162.50 holding along with the 100-day moving average.

Additional hurdles are at $164-$164.50 and a downtrending 50-day moving average on continued closes above $162.50. Near-term support is at $160.50-$160 with a move below the latter being a slightly bearish development.

RSI is back in an uptrend with resistance at 50. Continued closes above this level would be a bullish signal for continued strength for a run towards 60. Support is at 45-40.

The Consumer Discretionary Select Spiders (XLY) closed higher after reaching a peak of $101.93. Resistance at $102-$102.50 held with the close above the 100-day moving average being a slightly bullish development.

Support is at $101-$100.50 with a move below $100 likely signaling a short-term top.

RSI is approaching late March and early April resistance near 50 with a close below this level leading to a possible push towards the 55-60 area. Support is at 45-40.

All the best,
Roger Scott