Yesterday we laid out the parallels between early October and these first few days of December.  The mood in early October, surrounding stocks (and the risk environment), soured on 1) weak manufacturing data, and 2) more hard ball from Trump, on trade.  We’ve had the same this week.  

And so far, we’ve had a similar response in stocks. First down sharply, then up sharply.

Why?  Remember, back in October, Trump ramped up the aggression against China, and it paid off.  Days later they were shaking hands on a deal. The S&P went on to 2% gain on the month.  

So, yesterday we get more tough talk from Trump on China, giving the appearance that he was blowing up a potential deal.   But as we discussed in my note yesterday, it looked like a repeat of his October tactic – to gain additional leverage, perhaps to get final details of a “Phase one” deal to swing his way.   That appears to be the case.  By last night, reports were saying Kushner’s recent involvement in the negotiations meant a conclusion was near, and there were reports that China was working out who to send to a deal signing (also saying it won’t be Xi). 

So we have this chart on stocks …