U.S. markets showed weakness throughout Monday’s action on news China will likely turn down fresh U.S. trade talks if President Donald Trump moves ahead with $200 billion in tariffs against Chinese products.
The tariff level is expected to be around 10%, far below the 25% the White House had said it was considering.
While this might be considered better-than-expected news on the trade front, it was lost in the shuffle, as tariff tiffs continue to be a slight headwind for the major indexes.
The Nasdaq tumbled 1.4% following the backtest to 7,890. Fresh support at 7,875 and the 50-day moving average held on the close below the 2,900 level.
The Russell 2000 fell 1.1% after testing an intraday low of 1,702. Upper support at 1,700-1,690 held and levels that have been holding since mid-August.
The S&P 500 sank 0.6%, after trading to a low of 2,886 ahead of the closing bell to snap a 5-session win streak. Fresh support at 2,875 held on the close back below the 2,900 level.
The Dow decline 0.4% after tapping a low of 26,030 while snapping a 4-session win streak. Support at 26,000 held with a move below 25,800 being a signal for lower lows.
Real Estate led sector strength after rising 0.6%. Consumer Staples and Materials were up 0.4%.
Technology and Consumer Discretionary were the weakest sectors after giving back 1.3% and 1.2%, respectively. Communications Services dropped 1%.
Global Economy – European markets were mixed on continued chatter over Brexit negotiations. Britain Prime Minister Theresa May said she is willing to pull the UK out of the European Union without a deal if it does not agree to her Brexit plan.
Meanwhile, the EU’s chief negotiator, Michel Barnier, said negotiations between the EU and the UK were being conducted in a spirit of good cooperation.
Germany’s DAX 30 gave back 0.2% and France’s CAC 40 dipped 0.1%. UK’s FTSE 100 slipped 2 points, or 0.03%. The Stoxx 600 Europe and the Belgium20 added 0.1%.
Eurozone annual inflation slowed slightly to 2% in August, down from 2.1% in July, and matching estimates.
The International Monetary Fund warned that all likely Brexit outcomes will entail costs for the UK economy. Meanwhile, the UK Chamber of Commerce cut its economic forecast.
ECB Governing Council member Vasiliauskas said international trade is raising questions, but there’s no ground to talk about extension of stimulus at this point in time given the domestic euro area growth.
The Bundesbank in its monthly economic report said the upswing in Germany should fundamentally remain intact, not least because of the persistently good domestic economy.
They went on to say the overall pace of economic expansion in Germany should improve markedly after the auto industry overcomes conversion problems to new emission-test procedures.
Asian markets also settled mixed after China said it may decline an offer for renewed trade talks with the U.S. if President Trump carries out his threat for additional tariffs.
Hong Kong’s Hang Seng tanked 1.3% and China’s Shanghai sank 1.1%. South Korea’s Kospi fell 0.7%. Japan’s Nikkei rallied 1.2% and Australia’s S&P/ASX 200 rose 0.3%.
China August new home prices rose in 68 of 70 cities the index tracks, the most in a year.
The Empire State Manufacturing Survey dropped 6.6 points to 19 in September, below forecasts for a print of 22. The employment component inched up to 13.3 from 13.1, and is above the 12.9 average over the last 6 months.
The workweek was rose to 11.5 from 8.9 while new orders slipped to 16.5 from 17.1. Prices paid increased to 46.3 from 45.2, with prices received at 16.3 from 20.
The 6-month index fell to 30.3 from 34.8, with the future employment gauge at 14.7 from 18, and new orders at 33.3 from 36.
Future prices paid rose to 56.1 from 53.3, with prices received at 30.9 from 26.7. The 6-month outlook on capital expenditures dropped to 19.5 from 26.7.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) tested a low of $118.05 shortly after the open with upper support at $118.25-$117.75 getting stretched but holding.
The intraday rebound to $118.82 failed lower resistance at $119-$119.50.
RSI is trying to hold longer-term and July support at 40-35. A move below the latter could lead to a test to the 30 area and April and May lows.
Resistance is at 45 with a close above this level signaling additional strength.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) traded in negative territory throughput the session while trading to a low of $76.48. The index has been in a tight trading range between $76-$77.50 for 7 trading sessions.
The bottom of the this range is back in play.
Short-term support at $76.50-$76 and the 50-day moving average held.
A move below the latter would suggest continued weakness towards the $75-$74 area.
Lowered resistance is at $77-$77.50. A close above the latter could lead to a retest of $78-$78.50. The late August and all-time high reached $78.25.
RSI is approaching late June and July support at 45.
A move below this level would be a continued bearish development for a continued pullback towards 40 and late March lows. Resistance is at 50.
The Financial Select Sector Spiders (XLF) closed in the red for the 3rd-time in 4 sessions following the backtest to $28.08.
Support at $28 and the 50/200-day moving averages held with a close below the latter likely signaling additional weakness towards $27.75-$27.50.
Resistance is at $28.25-$28.40 with continued closes above $28.50 being a more bullish development.
RSI is in a slight downtrend with support at 45. A move below this level would be a bearish signal for lower lows.
Near-term resistance is 50-55.
All the best,