The major U.S. equity markets closed lower on Monday as investors decided to book profits following Friday’s surge that was fueled by a better-than-expected U.S. Non-Farm Payrolls report and ahead of the release of Wednesday’s U.S. Federal Reserve interest rate decision and monetary policy statement. There wasn’t much of a reaction in the safe-haven U.S. Treasurys and Japanese Yen, indicating investors are treating the sell-off as normal.

In the cash market, the benchmark S&P 500 Index settled 3135.96, down 9.95 or -0.32%. The blue chip Dow Jones Industrial Average closed at 27909.60, down 105.46 or -0.38% and the technology-based NASDAQ Composite finished at 8621.83, down 34.70 or -0.40%.

US-China Update

Although last week’s jobs report and this week’s Fed decisions are grabbing most of the headlines, the most important underlying factor driving the price action is still U.S.-China trade talk progress. The prospect of a limited trade agreement between the two economic powerhouses is still at the forefront, however, investors are getting a little nervous with less than a week to go before Washington is set to impose even more tariffs on Chinese goods.

The rhetoric from U.S.-China officials remains positive, but the price action in the trade-sensitive stocks like Apple, for example, suggests investors may be starting to lighten up on the long side, while they wait for something more positive than just “talk”. Apple fell 1.4% to lead the Dow lower.

On Friday, Larry Kudlow, director of the White House National Economic Council, told CNBC on Friday that both sides were “close” to a deal, but suggested President Trump was prepared to “walk away” if certain conditions were not met.

On Monday, China Assistant Commerce Minister Ren Hongbin said the country hopes to make a deal with the U.S. “as soon as possible.”

Outside Factors Encouraging Investors to Take Protection

After solid rallies in October and November, the major stock indexes are sputtering in early December.

“There’s a cautious optimism in the market right now, but there are just so many items for the market to contend with,” said Dan Deming, managing director at KKM Financial. He also noted traders have been loading up on Cboe Volatility Index options ahead of the December 15 deadline.

Besides the trade deal deadline, investors are monitoring Washington politics, the North American Free Trade Agreement deal and the U.K. Brexit vote later this week.

House Democrats are preparing to announce at least two articles of impeachment against President Trump on Tuesday. The articles of impeachment will focus on obstruction of Congress and abuse of power, but all details aren’t settled yet.

Voters in the U.K. will go back to the polls on December 12 in an effort to break the current gridlock in parliament. The general election has been seen as a proxy for a second EU referendum with voters choosing between Boris Johnson’s Brexit deal or a remain alliance, which would entail the possibility of staying within the EU.

Finally, House Democrats and the Trump administration are close to reaching a tentative deal on replacing the North American Free Trade Agreement after months of deliberations, sources told CNBC. The Democratic-held House could vote on the United States-Mexico-Canada Agreement by December 18, according to the sources.

This article was originally posted on FX Empire

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