US stock market recorded a surge in buying interest on Wednesday, thanks to rumors that a counterbalance to Trump’s policy from the Democrats may turn out to be more bitter than expected. The main indices are scrambling out of the bearish territory, the news that the Democrats are full of enthusiasm to dvelve into tax evasion and Trump’s other questionable past with a fresh vigor. Their firm belief that the lever of pressure on the president should be sought in this direction has been a big boost for stocks. But this time the search for the opposition will be the investigation initiated in the House of Representatives, as well as the escalation of the conflict with China, which the Democrats initially opposed.
Trump threatened to hit back with the Senate investigation on Democrats and creating barriers for the infrastructure projects suggested by his opponents.
S&P 500 added more than 2% on Wednesday, easily overcoming resistance at 2800, volatility according to the VIX index sharply declined, on Thursday the index fluctuated around 16. Stock market buoyancy draw some attention from safe heaven assets, gold abandoned its claims for appreciation, and continues to decline today. In general, we observe a large-scale risk-off movement, which once again confirms the hypothesis that the decline in stock indices could mean a deviation from rational views.
Futures on the S&P 500 indicate a correction today as yesterday’s growth will encounter today the uncertainty associated with the Fed’s decision, FOMC’s assessment of current situation including the stock market, as well as a forecast for future policy steps. In general, the Fed’s position is known, so if today the meeting has no surprises, the market will most likely continue to move upward.
Data on the Chinese economy unexpectedly exceeded expectations. The version that the slowdown in production would have a negative impact on export volumes was not confirmed. Probably, we are seeing some inert reaction of manufacturers to the threat of escalation of the tariff war, which are trying to ship as many goods as possible before the introduction of new duties. This is confirmed by the decline in export orders for Chinese firms, which have recently become known from weak PMI indicators in manufacturing, services and the composite activity gauge. Also, according to the Canton fair, export orders from the United States decreased by 30.3% in October compared with last year. Therefore, the market probably refrains from the hypotheses of recovery in the manufacturing sector, maintaining the bearish outlook on it.
Import data also turned out to be higher than projected, in line with Beijing’s recently announced measures to stimulate the economy through consumption growth. Authorities consistently reduce taxes on some durable goods, such as cars and machinery while also removing barriers for the import of goods.
In general, Chinese data allow us to build positive forecasts for the growth of global demand, despite the disastrous third quarter, after which concerns about the world’s second largest economy have increased dramatically.
October was the first full month after the tariffs entered into force on September 24, so the improvement in foreign trade has so far been fully attributed to adaptation to the new trading realities. The market prices are in low chances of a successful meeting of leaders in the US and China in November, mainly due to the claims of the White House to its main trading partner, such as the theft of intellectual property, which remain unresolved.
China’s exports in October rose by 15.6 percent yoy, after rising 14.5 in September and despite a slowdown to 11 percent, widely expected by the market. In September, imports grew by 21.4% compared with last year, an impressive figure, which turned out to be significantly higher than expectations at 14.3%.
The US trade deficit with China, contrary to Trump’s efforts, rose to a record level of $ 258.15 billion over the past 10 months, compared with $222.98 billion in the same period last year.
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