Date: 06 Nov 2018

The Trump Administration has triggered a trade war with the European Union, Canada, South American partners, and most importantly, with China. This war can well have significant effects on the surplus in October driven by the 10% tariff on $200 billion of additional Chinese goods at the end of September. Judging by recent US data, trade balance and manufacturing, the imposition of that extra 10% tariff does not appear to have made that much difference, nonetheless, these will be the first full month numbers that we will be able to measure the full effect.

 It appears that the tariffs are not helping the US trade balance that widened to USD -54.0 billion in September, compared to the upwardly revised USD -53.3 billion in the previous month and coming up short analysts’ forecast of a USD -53.6 billion gap. It is the highest deficit in 7 months as imports advanced to a record high. A positive value shows trade surplus, while a negative value shows a trade deficit.

 The Institute for Supply Management’s Manufacturing PMI in the US dropped to 57.7 in October, comparing to the 59.8 registered in September and missing analysts’ consensus of 59. The reading pointed to the slowest growth in factory activity in six months after reaching the highest since 2004 in August 2018. New orders, production and employment eased and price pressures continued. The ISM Manufacturing PMI is a significant indicator of the overall economic condition in the US. A result above 50 is seen as positive, while a result below 50 is perceived as negative for the US economy.

Since the beginning of 2018 until last Monday close, the US index is above water with a 2.88% gain and since the start of November, the Dow Jones Industrial Average (DJIA) is staying afloat with more than 1.0% rise. Nonetheless, the week began on the right foot with an increase of 0.9% and on the daily basis closed green with almost 1.0% gain. Furthermore, the index is in a warning phase since early November.

On yesterday session, the Dow Jones Industrial Average (DJIA) initially fell but found enough support near the 38.2 Fibonacci retracement at 25,185 to erase all of its losses and close near the high of the day, however, closed within Fridays’ range, which suggests being slightly on the bullish side of neutral.

The stochastic is showing a strong bullish momentum and is above the 50 midline.

The Dow Jones Industrial Average (DJIA) began October with the right foot and even made a new year-to-date high at 26,964, however, since then it took the elevator down not to ground floor but almost being the darkest month of this year so far. Nonetheless, the index began an upward correction in late October that came to a halt in early November, this does not mean that the upward correction is over, just that is taking a pause. Looking forward it has legs to run up to a daily resistance at 25,885 which lines up with the 61.8 Fibonacci retracement and the 50-day moving average.

 

Watch out this week:

On Wednesday, November 07 US Midterm Election Day results, counting starts as soon as the polls close and we should have the results early morning Wednesday. Market analysts expect a divided US Congress, which means that Trump would be unable to drive his domestic policy agenda forward. Therefore, the mid-term elections should have limited implications for markets and the economy, as there will be no changes to economic policy.

On Thursday, November 08 at 19:00 GMT (14:00 PM ET) the US Federal Reserve Bank (FED) is scheduled to announce that the interest rates will remain unchanged at 2.25% as widely expected by market analysts. The FED will also release its statement regarding monetary policy. A hawkish statement may be viewed as positive for the US dollar (USD), whereas a dovish view is considered negative.

UsaInd is a CFD written over Dow Jones Industrial Average futures.

 

UsaInd Dec ’18 Daily Candlestick Chart

UsaInd Dec ’18 Daily Candlestick Chart

 

Written by Hugo O’Neill, External Analyst

 

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