This week was historic for more than a few reasons. The United States-Mexico-Canada Agreement was accepted by all three countries and should be passed in early January. Phase 1 of a trade agreement with China was signed. The pact included some resolution to theft of intellectual property. There will be large purchases in agricultural products and energy, thus the scheduled tariffs were postponed. In addition, China agreed to stem currency manipulation. The Fed left interest rates unchanged, which indicates they believe the trade headwinds have diminished. Furthermore, Conservative Boris Johnson won the U.K. election, and he plans to have Brexit finalized in January. This means a large trade agreement with the U.K. is likely down the road. Impeachment hearings appear to have had little if any impact, probably because many Americans are tiring of partisan politics and overpaid politicians wasting taxpayer dollars when there are far more pressing issues to address.
As a result, stocks soared to new highs, and grains rallied sharply as well. The pound and euro also had big up weeks while the dollar declined. Interest rates rose while gold and yen fell. These so-called havens have been moving opposite equities depending on news on the trade front.
Investors should always be aware of risk. When traders talk about event risk, they are usually referring to scheduled reports, which reveal fundamentals or supply and demand influence. Markets move mainly on domestic event risk. However, now that trade and tariffs are the hot topics, international events have more impact than in the past. Unscheduled events happen, so it wise to know the hot topics and market movers. Trade talks are at the top of that list.
Each week MTM conducts the Monday Morning Meeting. This session is designed to highlight pertinent scheduled events and the possible scenarios depending on whether the data are bullish, bearish or neutral. By preparing to face the weekly obstacles, we can react almost instinctively and immediately. Professional athletes spend countless hours honing their craft. When game time comes, they often enter zones where due to preparation they react to situations without hesitation.
Traders need to practice and prep like athletes. Be mindful of the fundamentals and the effects and relationships between the main sectors…interest rates, equities, energy, forex, metals, and even grains and softs. For the time being trade has the most impact on the main sectors, followed by inflation, employment and sales data. Consumer sentiment is scrutinized by the Fed, so we should pay attention to it as well. A prepared trader will be a profitable one.
Senior Futures Instructor
Market Taker Mentoring, Inc.