1. Moving the markets

While yesterday’s initial market reaction to the signing of the Phase-1 US-China trade deal was merely a yawn followed by a modest sell-off, today things looked different.

Optimism was soaring with the major indexes scoring new record highs, as traders had a chance to digest the trade truce. The 96-page agreement lays out that China is supposed to purchase $95 billion more in US commodities than in 2017, and roughly more than $100 billion in manufactured goods and services, according to MarketWatch.

However, as always, doubt exists whether this agreement can lead to a lasting accord, as the Phase-2 negotiations are being prepared. But, for right now, the markets are pleased that expectations have been met. Also throwing an assist was the Senate approval of a new trade deal between the U.S., Mexico and Canada, along with a huge short squeeze.

On the economic front, things took a turn for the better with the Philly Fed Business Outlook spiking from a revised 2.4 to 17, which was far above expectations of 3.8. Then December Retail Sales surprised to the upside, despite an Online Sales slowdown, according to ZH. Ex-autos, the index surged 0.7% vs. and expected 0.5% rise.

Of course, all of this pales compared to the real reason for the ongoing market levitations, namely the growth of the Fed’s balance sheet, as this chart shows. To be clear, it’s not just the Fed, but all Central Bank policies in unison, that seem to push equity prices to ever higher levels.

Right now, we are enjoying the ride.

1. Moving the markets

The major indexes recovered from an early slide, headed higher and touched new records, when news of trouble in the US-China deal put an end to the bullish theme and south we went.

Despite all efforts of regaining lost territory, the S&P and Nasdaq ended up moderately in the red, while the Dow was able to hang on to a green close.

Casting the shadow over the markets, and causing the mid-day stumble, were doubts about the extent of China import tariff reductions of goods coming into the U.S., which are likely to stay in place until after election time. In addition, Bloomberg reported that “any move to reduce them will hinge on Beijing’s compliance with the terms of the Phase-1 trade accord.”

That was enough for a trend reversal with the Dow losing its 29k level.

The rebound rally early on received an assist from good earnings reports by banking giants JPMorgan and Citigroup, with especially the former blowing out expectations, while Wells Fargo disappointed.

I expect to see some more bobbing and weaving in the markets, depending on the latest earnings news, and even the actual signing of the first portion of the US-China trade agreement could very well be met with a yawn and treated as a non-event.

1. Moving the markets

The bullish mood continued with the S&P and Nasdaq setting new records, while the Dow briefly crossed its 29k marker but backed off later in the session.

Supporting the ramp higher was news that the U.S. no longer plans on designating China a currency manipulator, which is mainly a symbolic designation but was also seen as a good will gesture.

That further seems to soothe the always raw nerves in the US-China trade battle, which are scheduled to be signed this Wednesday, although it will only be a Phase-1 settlement with other negotiations to follow with the goal to eventually achieve a full resolution.

With the earnings season on deck, rumors circulated that, once world’s largest investment banks show their report cards, some of the details (fixed income) may not be as bad as feared, which lent support to today’s advance.

Taking top billing today was the Nasdaq with a +1.04% gain, while the S&P settled for 2^nd place with a nice showing of +0.7%, a good chunk of which came during the last hour push, as we have witnessed many times in the past.

All eyes are now on tomorrow’s start of the financial earnings reporting cycle, which may very well give a hint as to what else is to come.