Dow Jones wobble on Trump trade war and Lebanon war ceasefire

·         Wall Street Futures recovered from Trump trade war tantrum 2.0 on hopes & hypes of an imminent Gaza war ceasefire after Biden’s comments

·         Trump threatened additional tariffs on all goods from China at 10% and Mexico, and Canada at 25% as a punishment for failing to stop inflows of drugs and illegal immigrants in the US

On Monday, Wall Street Futures surged, while haven assets like Gold, and Silver plunged on the prospect of an imminent temporary truce/ceasefire between Hezbollah/Lebanon and Israel/US. Also, Trump’s selection of Bessent as the next US Treasury Secretary boosted UST, dragged USD/US bond yields to some extent, and buoyed US stocks, while undercutting Gold. Oil, Gold, and also Wall Street Futures wobbled on hopes & hopes of an imminent Lebanon war ceasefire.

But on early Tuesday Asian Session, Wall Street Futures, led by MNC/China heavy Dow Future tumbled after US President-Elect Trump threatened additional tariffs on all goods from China at 10% and Mexico, Canada 25% as a ‘punishment for sending’  or failing to prevent inflows of drugs and illegal immigrants to the US.

Trump said about Mexico and Canada tariffs:

“As everyone is aware, thousands of people are pouring through Mexico and Canada, bringing Crime and Drugs to levels never seen before. Right now a Caravan coming from Mexico, composed of thousands of people, seems to be unstoppable in its quest to come through our currently Open Border. On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States and its ridiculous Open Borders. This Tariff will remain in effect until Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country! Both Mexico and Canada have the absolute right and power to easily solve this long-simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”

Reuters reported that after tariff threats, Trump held a telephonic conversation with Canada's PM Trudeau in which they discussed trade and border security, a Canadian source familiar with the situation said: "It was a good discussion and they will stay in touch”.

On China tariffs, Trump clarified as per election campaign promises:

“I have had many talks with China about the massive amounts of drugs, in particular Fentanyl, being sent into the United States – But to no avail. Representatives of China told me that they would institute their maximum penalty; that of death, for any drug dealers caught doing this but, unfortunately, they never followed through, and drugs are pouring into our Country, mostly through Mexico, at levels never seen before. Until they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America. Thank you for your attention to this matter.”

The Chinese embassy spokesperson in Washington pointed out:

·         China believes that China-U.S. economic and trade cooperation is mutually beneficial.

·         No one will win a trade war or a tariff war.

·         China has taken various steps since a 2023 U.S.-China meeting after which Beijing agreed it would stem the export of items related to the production of the opioid Fentanyl.

·         All these prove that the idea of China knowingly allowing fentanyl precursors to flow into the United States runs completely counter to facts and reality.

·         China had noted Trump's comments and would respond in due course

Trump Twitter/truth tantrum 2.0

President-Elect Trump should focus on why the US is now under a drug/opioid pandemic and then blame China/Mexico for the same. Anyone can push such drugs into the US if there is widespread corruption at entry points. Trump should also focus on creating well-paid jobs and self-employment in the US by enacting proper policies rather than a never-ending trade war, which no one can win.

Part of Trump's mobile or the whole of it may be imported from China, which the US may not match in terms of quality and pricing considering China's massive infra &  industrial and logistical along with the reserve of rare earth materials. The US is now going through a huge crisis of homelessness, drug addiction, and also criminal/gun culture due to various social and economic issues. Trump should look at China such social issues there. Trump is now trying to run his government through Twitter/Truth comments like we have seen during his 1st term.

As President-Elect, Trump is already seeking public opinion about various policy issues including illegal immigration potential deportations, and even tariff policies. Trump’s tariffs are additional import duties to be paid by American importers/companies to the US Government (Treasury) at the time of imports at various entry points. Thus eventually, Americans will have to bear Trump tariffs, not China, Mexico or any other exporter countries. But generally, in such trade war scenarios, as we have seen during Trump trade war 1.0, as a trade war/tariff/import currency, USD is getting strong against exporter currency, which may suffer from such additional tariffs, which may eventually weaken their economy. Thus during Trump trade war 2.0, USDCNY appreciated by almost 150 bps naturally or even artificially to some extent as PBOC allowed it.

In any way, the appreciation of USDCNY adjusted Trump tariffs almost equivalently as the imported price of Chinese goods adjusted to some extent with stronger USD even after imposing higher Trump tariffs. Chinese exporters also will have not to reduce prices meaningfully as devalued CNY adjusted the buying price of US importers almost automatically. Trump often said that China has to devalue its currency against the USD, so the Chinese economy is suffering, while the US is collecting billions of dollars from China.

But in reality, US exporters/consumers are paying Trump tariffs. Trump is collecting tariffs/import duties/ direct taxes from the US public on one hand, while, providing some tax cuts on the other hand. Trump has to improve China’s huge industrial infra and relatively cheap labor and other input costs to match with China, the manufacturing powerhouse of the world, not merely imposing additional tariffs. The US generally imports around $3T worth of goods, with a major portion from China directly or indirectly. If the US manufactures those goods, it would invariably cost much more to the US consumers.

The US economy needs cheaper imported goods and also laborers (immigrants) for the goldilocks nature of the economy. The same is almost true for the EU/Europe. When an economy turns into a developed economy, labor cost invariably increases and it tends to outsource various goods rather than manufacturing itself. Thus US/EU, which was once a big manufacturing powerhouse, has now turned into a service industry powerhouse.

Even, in the case of China, this gradual transformation is now happening. As China is now fast turning into a developed economy with almost 1.4B people, labor costs id rising and it’s also shifting some traditional manufacturing bases to developing countries like Bangladesh, Mexico, and various African countries due to rising labor costs. For decades, China has been gradually expanding in terms of trade & diplomacy in other countries across the globe to reduce too much dependency on the US/EU.

China is also helping various countries to build transport infra (BRI) for smooth trade and also actively helping those countries to develop their economy, which in turn will help the Chinese economy directly or indirectly; China is providing its expertise, techs, and finances to develop various developing countries and even so-called 3rd world countries like Afghanistan, Pakistan, Bangladesh, Nepal, Bhutan and Sri-Lanka. China is gradually expanding all over the world in terms of trade, while the US is trying to expand in terms of the military as China is now the king of consumer goods and infra, while the US is the global leader in terms of military industry.

But even China is now moving fast to match the US/EU in terms of military and also aviation industry. China has developed its own civilian and military super jets, which may challenge the duopoly of Boeing and Airbus not even in China, but also globally. China is also the global leader in various rare earth materials required to make high-tech chips, used in day-to-day electronic goods and also in aviation/missiles. And China is also developing fast to manufacture high-tech AI chips to match with US and end the tech monopoly of the US, which is now using tech & trade as a weapon against China.

On mid-Tuesday, Wall Street Futures recovered as the market may have realized that Trump’s late Monday Truth comments about additional tariffs on China, Mexico, and even G7 ally Canada for drugs and illegal immigrants/criminals are mere rhetorics only. Trump is merely threatening China, Mexico, and even Canada for his political compulsion. Trump trade war may be more negative for US rather than China.

On mid-Tuesday, the US stock market also recovered after the official announcement of the Lebanon war ceasefire: US President Biden said the Lebanon/Hezbollah and Israel war ceasefire to take effect at 4 a.m. after the Israeli cabinet votes 10-1 to approve the deal.

Joint Statement from President Biden of the United States and President Macron of France Announcing a Cessation of Hostilities

“Today, after many weeks of tireless diplomacy, Israel and Lebanon have accepted a cessation of hostilities between Israel and Lebanon. The announcement today will cease the fighting in Lebanon, and secure Israel from the threat of Hezbollah and other terrorist organizations operating from Lebanon. This announcement will create the conditions to restore lasting calm and allow residents in both countries to return safely to their homes on both sides of the Blue Line. The United States and France will work with Israel and Lebanon to ensure this arrangement is fully implemented and enforced, and we remain determined to prevent this conflict from becoming another cycle of violence. The United States and France also committed to lead and support international efforts for capacity-building of the Lebanese Armed Forces as well as economic development throughout Lebanon to advance stability and prosperity in the region.”

Remarks by President Biden Announcing Cessation of Hostilities Between Israel and Hezbollah:

“Today, I have some good news to report from the Middle East.  I just spoke with the prime ministers of Israel and Lebanon, and I’m pleased to announce that their governments have accepted the United States' proposal to end the devastating conflict between Israel and Hezbollah. And I want to thank President Macron of France for his partnership in reaching this moment.

For nearly 14 months, a deadly conflict raged across the border that separates Israel and Lebanon — a conflict that began the day after the October 7th attack by Hamas on Israel.  Hours later, at 2:00 a.m. in the morning, Hezbollah and other terrorist organizations backed by Iran attacked Israel in support of Hamas. 

Let’s be clear: Israel did not launch this war.  The Lebanese people did not seek that war either, nor did the United States. Over the past year, including in the days immediately- — following October 7th, I directed the U.S. military to flow assets and capabilities into the region, including aircraft carriers, fighter squadrons, and sophisticated air defense batteries to defend Israel and deter our common enemy at critical moments. 

Since the war with Hezbollah began, over 70,000 Israelis have been forced to live in refugee — li- — live as refugees in their own country, helplessly watching their homes, their businesses, and their communities as they were bombarded and destroyed.  And over 300,000 Lebanese people have also been forced to live as refugees in their own country in a war imposed on them by Hezbollah.

Let us — let me be clear: If Hezbollah or anyone else breaks the deal and poses a direct threat to Israel, then Israel retains the right to self-defense consistent with international law, just like any country when facing a terrorist group pledged to that country’s destruction.

At the same time, this deal supports Lebanon’s sovereignty.  And so, it heralds a new start for Lebanon — a country that I’ve seen most of over the years, a country with rich history and culture.  If fully implemented; this deal can put Lebanon on a path toward a future that’s worthy of its significant past. And just as the Lebanese people deserve a future of security and prosperity; so do the people of Gaza. They too deserve an end to the fighting and displacement.

The people of Gaza have been through hell.  Their word — their world is absolutely shattered.  Far too many civilians in Gaza have suffered far too much.  And Hamas has refused, for months and months, to negotiate a good-faith ceasefire and a hostage deal.  And so, now Hamas has a choice to make.  Their only way out is to release the hostages, including American citizens which they hold, and, in the process, bring an end to the fighting, which would make possible a surge of humanitarian li- — relief. 

Over the coming days, the United States will make another push with Turkey, Egypt, Qatar, Israel, and others to achieve a ceasefire in Gaza with the hostages released and the end to the war without Hamas in power — that it becomes possible. 

As for the broader Middle East region, today’s announcement brings us closer to realizing the affirmative agenda that I’ve been pushing forward during my entire presidency: a vision for the future of the Middle East where it’s at peace and prosperous and integrated across borders; a future where Palestinians have a state of their own, one that fulfills its people’s legitimate aspirations and one that cannot threaten Israel or harbor terrorist groups with backing from Iran; a future where Israelis and Palestinians enjoy equal measures of security, prosperity, and — yes — dignity.

To that end, the United States remains prepared to conclude a set of historic deals with Saudi Arabia to include a security pact and economic assurances together with a credible pathway for establishing a Palestinian state and the full — the full normalization of relations between Saudi Arabia and Israel — a desire they both have.

I believe this agenda remains possible.  And in my remaining time in office, I will work tirelessly to advance this vision of — for an integrated, secure, and prosperous region, all of which — all of which strengthens America’s national security. 

Getting all this done will require making some hard choices. Israel has been told on the — has been bold on the battlefield.  Iran and its proxies have paid a very heavy price.  Now Israel must be bold in turning tactical gains against Iran and its proxies into a coherent strategy that secures Israel’s long-term — its long-term safety and advances broader peace and prosperity in the region.  Today’s announcement is a critical step in advancing that vision.  And so, I applaud the courageous decision by the leaders of Lebanon and Israel to end the violence. It reminds us that peace is possible.  Say that again: Peace is possible.  As long as that is the case, I will not for a single moment stop working to achieve it.”

Highlights of Biden’s presser and Q&A about the Lebanon war ceasefire:

·         Trying for an imminent Gaza war ceasefire despite all the odds

·         Over the next 60 days, the Lebanese Army and the State Security Forces will deploy and take control of their territory once again.

·         Hezbollah terrorist infrastructure in southern Lebanon will not be allowed to be rebuilt.

On Wednesday, Hamas said they are ready for the Gaza ceasefire after Hezbollah appears to lay down arms: “We have informed mediators in Egypt, Qatar, and Turkey that Hamas is ready for a ceasefire agreement and a serious deal to exchange prisoners”.

Conclusions:

The outgoing US President Biden is now trying his best to seal at least a temporary Gaza war ceasefire before he leaves on 20th January’25 and incoming President Trump takes charge to seal that deal. The US and Israel had expressed hopes as the Lebanon ceasefire took shape that the loss of Hezbollah’s military support would help push Hamas to sue for peace. The group has long maintained that it wants a ceasefire but has been unwilling to meet Israeli demands for hostages. International mediators say Israeli demands regarding leaving troops in Gaza have also been an obstacle, blaming both sides for the impasse.

On Tuesday, Biden said the US, Egypt, Qatar — and now Turkey as well — will make another push for a ceasefire in Gaza. This is the first time Biden/US is adding Turkey into the equation, ostensibly since Hamas leaders landed there after Qatar ousted them from Doha. Qatar announced that it was temporarily ending its mediation efforts shortly after it virtually kicked out Hamas leaders in late October. Doha has not since announced a resumption of its mediating role.

Israel has repeatedly rejected the two-state framework; PM Netanyahu, who for months refused to plan at all for the post-war management of Gaza, while rejecting the involvement of a reformed Palestinian Authority, even though it would unlock much-needed support from Israel’s Arab neighbors for the post-war reconstruction and management of Gaza.

Market Impact:

On Tuesday, Wall Street Futures surged on hopes & hypes of an imminent Gaza war ceasefire after Biden successfully brokered Hezbollah war ceasefire. Gold and oil slips to some extent. Also, Trump’s selection of Bessent as the next US Treasury Secretary boosted UST, dragged USD/US bond yields to some extent, and buoyed US stocks, while undercutting Gold.

On Tuesday 6, Wall Street was boosted by utilities, consumer discretionary, communication services, techs, consumer staples, techs, consumer staples, real estate, health, banks & financials, and industrials, while dragged by materials, and energy. Scrip-wise, Wall Street was also boosted by Amazon, Microsoft, Walmart, 3M, Chevron, Salesforce, IBM, AND Apple, while dragged by Amgen, Nike, Boeing, Walt Disney and Visa,

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 44850) now has to sustain over 45100-45300 for any further rally to 45500-46000 in the coming days; otherwise sustaining below 45000/44750-44650/44200, DJ-30 may again fall to 43900/43300-42600/41600 in the coming days.

Similarly, NQ-100 Future (21150) has to sustain over 21500 for a further rally to 21700/21900-22050/22500 and even 23000 levels in the coming days; otherwise, sustaining below 21450-21350, NQ-100 may again fall to 20950/20850-20500/20300 and 20000/19800-19650/19350 in the coming days.

Technically, SPX-500 (CMP: 6000), now has to sustain over 6100 for any further rally to 6150/6200-6350/6500 in the coming days; otherwise, sustaining below 6075/6050, may again fall to 6000/5950-5900/5850 and 5675/5600-5550/5500 in the coming days.

Also, technically Gold (CMP: 2600) has to sustain over 2595 for a recovery to 2635/2675-2700/2715 and further 2725/2750-2775/2795 in the coming days; otherwise sustaining below 2590-2565, Gold may further fall to 2550/2500-2470/2450 in the coming days (depending upon Fed rate cuts, Gaza/Ukraine war trajectory); Gold surged almost 75% in the last one year since Gaza war started back in October’23. Now it may retrace to $2100 levels if Trump indeed can mediate both Gaza and Ukraine war ceasefire by early 2025.