Stock Market upturn is now dependent on China-US trade talks

In the week ahead trade talks between the US and China will show an effect on the market’s focus. Many investors are also waiting to see whether other companies join the ranks of Apple and its earnings warning. In November, Apple blamed a revenue miss in high extent on a sudden drop off in sales of iPhones in China. This is not only a sign of trade tensions hitting China but also a sign that U.S. economy and corporations could feel the pinch. After Apple’s comments, the next day there is a stunning drop in ISM manufacturing data that was also blamed in trade friction. Quincy Krosby, the chief market strategist at Prudential Financial said that- if we could move from high earnings to a more moderate earnings backdrop that can be accepted by the market, but if guidance is weak and the companies revenue growth are lowering, it will affect the market.

The United States and China will have a vice ministerial-level trade talks in Beijing on Monday and Tuesday and it is also expected that another round of meetings will be held in the following week. According to the Economists expectations, US growth slows down slightly to 2-2.5 percent range in the first half but markets have been reacting to the chances of an even slower economy. The ISM data for December is very upsetting because of a steep drop in new orders. Krosby said that “What this market needed was a strong data release, as it was an injection to positive data in a market which has been worried about the economy that is potentially stalling. In the coming week, data releases include services ISM Monday and international trade data out on Tuesday morning. But the data for which markets are waiting will be in Friday’s CPI inflation report.

On Friday, Powell indicated that inflation was not a concern for the Fed and despite the concerns, the economy is still in good shape. Also, he said that FED was paying very good attention to the market that is reflecting a weaker outlook than the data suggests. Emanuel said market feels better about the FED moving its view towards hiking cycle. He also said the rally on the FED was important as it had been a concern for the market. He expects that if FED stays on hold this year and stop the roll off of its balance sheet by mid-year, there’s an expectation that communication between the U.S and China is poised to improve.

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