Wednesday brought more fireworks than market participants have been accustomed to of late, but that’s not saying much.
Stocks sank on Wall Street on reports that the US and China may be unable to come to terms on the long-awaited “Phase One” trade deal, which sources close to the White House now say may be pushed into 2020.
Equities (and the yuan) pared losses into the close, though. It was the biggest daily range for the S&P since midway through last month.
For what it’s worth (which is precisely nothing), a White House spokesman told Fox that “progress is being made” on the text of the interim agreement and that talks are ongoing.
Briefly, it looked as though stocks might log their first 1% move since early October, but it wasn’t to be. By the time the dust settled, the S&P was off by a mere 0.4%.
It did mark the first back-to-back decline for the S&P since October 8, snapping one of the longest streaks in recent memory.
Notably, 10-year yields fell another 5bps to 1.73% on Wednesday. TLT has risen in seven of the last eight sessions since suffering the worst weekly outflow on record earlier this month.
Treasurys ended close to session highs, as yields sank below their 50-DMAs. The 10-year closed below its 50-DMA for the first time since October 9, bull-flattening the 2s10s by another 2bps.
The dour trade headlines come less than 24 hours after Trump threatened to “just raise the tariffs even higher” if there’s no interim deal. Separately, the Wall Street Journal said the talks are at risk of hitting an impasse, and CNBC reported something similar.
With the House set to pass the Senate’s Hong Kong bill, the stage is set for tensions between Washington and Beijing to escalate further, although it’s unclear what Trump plans to do about the legislation, which China’s foreign ministry has decried in shrill terms.
This sounds like a trivial statement (and it is), but what happens over the next 24 hours will be key to the narrative.
China will surely lambast US lawmakers anew on Thursday for “meddling” in the country’s affairs, and Trump will be compelled to say something about the situation. Needless to say, the US president can ill-afford to irritate Senate Republicans right now, and Mitch McConnell has repeatedly insisted the White House make some manner of statement on Hong Kong.