Need to Know: This chart shows the single-biggest driver for the Dow (and it’s not Trump)

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After days of trade war doom and gloom, a wave of optimism has spread across global markets after the first day of talks between the U.S. and China.

U.S. President Donald Trump said negotiations are “going very well” and he plans to meet Chinese vice premier Liu He on Friday.

De-escalation in one conflict was followed up by escalation in another.

Iran said one of its oil tankers was hit by two rockets off the coast of Saudi Arabia, sending crude prices surging.

However, our chart of the day suggests that regardless of geopolitical tensions and global uncertainty, the Federal Reserve will still run the show.

Bank of America Merrill Lynch highlighted a particularly turbulent period of American history between 1968 and 1976, which included the Vietnam War, the end of the Bretton Woods monetary system, an oil crisis and Nixon’s impeachment process.

Despite all of the above, BAML said the Dow “slavishly followed the path of Fed policy — easing caused rallies and tightening caused corrections.”

The bank’s global investment strategy team said strong returns in 2019 were being driven by the Fed’s easing and bond bubble.

They remained bullish into 2020 as the European Central Bank restarts quantitative easing (bond buying), and the Fed resume purchases of Treasury securities (T-bills), which it described as ‘unofficial QE’.

“If Greece can successfully auction negative-yielding T-bills, we see no reason why the S&P 500 bull market that started at 666 [in March 2009] couldn’t end with an overshoot to 3333,” BAML said.

Extreme liquidity policies and bearish investors keeps the bank “contrarian bullish” into next year, it said.

The market

After the Dow Jones Industrial Average DJIA, +0.57%   finished 150 points up on Thursday, Dow futures YM00, +1.03%   are up, along with S&P 500 futures ES00, +1.03%   and Nasdaq NQ00, +1.14%  

Oil CL00, +1.48%   is up 1.5% after Iran said one of its tankers was hit by a rocket in the Red Sea. Gold is up and the dollar is down.

Europe stocks SXXP, +1.67%   are up, while Asian markets ADOW, +1.38%   rose sharply on fresh trade optimism.

The buzz

Oil has been thrust into the spotlight once again after an Iranian tanker was reportedly hit by two rockets off the coast of Saudi Arabia, sending crude prices 2% higher.

U.S. President Donald Trump brought a fresh wave of optimism to global markets, insisting trade talks with China are “going very well.”

Amazon laid out its position on a number of hot topics, clarifying it will continue working with energy companies and the U.S. government.

The board of French car manufacturer Renault has voted to oust chief executive Thierry Bollore, who had replaced Carlos Ghosn accused of falsifying financial reports in under-reporting compensation and breach of trust. Ghosn, who led the Nissan-Renault alliance, is currently awaiting trial and denies wrongdoing.

The British pound continued to rise, hitting $1.25, as hopes of a last-minute Brexit deal were raised. European Council President Donald Tusk said he had received “positive signals” from Irish leader Leo Varadkar following his meeting with U.K. Prime Minister Boris Johnson on Thursday.

Shares of German business-software giant SAP rose after upbeat results and news that CEO Bill McDermott stepped down on Thursday.

The Tweet

Golden State Warriors coach Steve Kerr caused a stir after giving his thoughts on the NBA’s China controversy.

Random reads

A $500 million replica of the Titanic could set sail as soon as 2022, thanks to an Australian businessman.

The Royal Mint has launched a solid gold debit card, but it’ll cost you £18,750.

A pair of ‘Jesus shoes’ with holy water in the soles are on sale for $4,000.

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