Wall St to open in the red; Wells Fargo subject to broker downgrade

Summary:

• US indices trading a little lower on the day

• What would it take to make a US-China trade deal?

• Wells Fargo in focus as UBS downgrades to “neutral”

Wall Street is set for what has been pretty rare phenomenon this afternoon with the 3 major stock benchmarks all called to open lower. The declines themselves are far from drastic and at present amount to little more than a pullback after a strong run higher in the past couple of weeks. There could in fact be an A-B-C correction taking place, with the current decline a potential “C” wave.

The S&P500 has pulled back a little in recent trade but remains above the 2946 breakout level. The declines so far today are a possible “C” wave in an A-B-C correction and so long as the market doesn’t move below 2946 then the breakout remains valid. Source: xStation

An article in the South China Morning Post has attracted some attention in recent hours with the international relations professor at Renmin University of China in Beijing cited as the key source:

According to Jin, who did not reveal the source of his information but is known to be well-connected in Beijing, the final 20 per cent includes completely abandoning the "Made in China 2025" industrial policy programme, a plan to cut the share of the state in the overall economy from 38 per cent to 20 per cent, as well as an implementing an enforcement check mechanism that would allow the US to dig into the books of different levels of the Chinese government.

There was a flicker of activity on these news as headline reading algos perked up before realising that there was not much in it. Not long before the news hit, WH economic adviser Peter Navarro was talking on CNBC and made the following comments:

• Wants to get USMCA done in 30-60 days

• So many times in the past year-and-a-half the news has been wrong

• Investors should play the long game

• They're manipulating their currency down into the toilet

• They're losing their supply chain faster than you can say 'Trump tariffs'

• We need to be patient with regards to US-China trade negotiations

• The tariffs are our best defense against Chinese aggression

Similar to the South China post story there’s nothing majorly market moving here, although the timing of the remarks on the news being wrong a slightly humorous.

There will be a bit of attention on Wells Fargo this afternoon when the stock opens after UBS cut its rating on the bank to “neutral” from “buy”. The reasons behind this decision were a view that Wells still lacks visibility on profitability improvement and as such the earnings estimates were also cut on the prospects for lower net interest income. Wells has enjoyed a decent run higher in recent weeks but still remains towards the lower reaches of the trading range seen in the past couple of years.

Wells Fargo closed back at the 23.6% fib retracement at 48.46 last night. The market is poking back above the 200 SMA which has capped gains over the past 12 months. Source: xStation