At Long Last!

At long last!  Stocks posted modest gains on Friday after both the US and China announced that they have agreed on a Phase One trade deal… kind of.  The session was fraught with conflicting and ambiguous  news reports, mixed signals, press conferences, and Tweets causing stocks to fluctuate.

 

N O T E W O R T H Y

 

• A deal is a deal.  It seems as if China and the US have finally agreed on something worth noting.  Notice the word “seems” in that last statement.  If we learned any details about the deal during Friday’s session, we learned that… there are not a lot of details.  Thankfully over the weekend WHILE YOU SHOPPED, a few more features emerged on Phase One.  1) China will purchase $40 -$50 billion in US agricultural products over the next two years.  That would be part of a larger, roughly $200 billion purchase in all goods categories, 2) Current 15% tariffs on $120 billion would go to 7.5% and the 25% tariffs on $250 billion of Chinese would remain in effect, 3) The tariff scheduled for yesterday has been postponed, 4) Sketchy details about China agreeing to some concessions about intellectual property are swirling about, and 5) The two sides hope to sign the agreement in January.   While it is really quite positive that both sides appear to be seeking some sort of relief, a signed deal would surely help a great deal.  That said, both sides are really trying to be as unambiguous as possible to let the world know that we have a deal as we were treated to a joint press conference over the weekend.  We appear to have progressed… let’s get that signature and move to Phase Two.

• Add to cart.  In case you missed it, the Holidays are here and shoppers are scrambling and clicking their way into the record books… so we hope.  On Friday, the US Census Bureau released its Retail Sales figure for November and it came in below expectations at +0.2% down from October’s +0.4% month over month growth.  Weak categories included personal care, sporting goods, clothing, and department stores.  Online retailers and electronics were, not shockingly, the best performing categories, according to the report.  Analysts are hoping that the weak number is a result of a late Thanksgiving holiday.  If the trend persists however, there could be an impact on GDP, so we need to continue to closely monitor consumption though the remainder of the holiday season… which is progressing quite quickly.
• Santa tracking radar: engaged.  In December of 1948, the US Air Force announced that it had picked up an unidentified sleigh “powered by eight reindeer, at 14,000 feet…”.  That was the binning of a tradition which brings us to present day North America Air Defense Command (NORAD), which tracks Santa’s Christmas Eve progress on a website for eager kids… and some adults.  Similarly, Wall Street will be closely monitoring the progress of its rapidly approaching Santa Claus rally, also a tradition dating way back.  Unfortunately, unlike with NOROD’s tracker, Santa doesn’t always reach his final destination – remember last year.  This year however, things are looking up.  Though a trade deal has yet to be signed, Wall Street has all but assumed that we have a done deal – check one unknown off the list.  In the UK, Boris Johnson and his Tory party logged a stunning victory in last week’s general election which almost guarantees that the UK will exit the EU in the coming months – check another unknown off the list.  The Federal Reserve, though it expects to be done cutting rates for now, has left the door open for further cuts if necessary and is certainly not looking to raise rates in the near future – check off another unknown from the list.  The conditions for a solid year-end close appear to be present.  Be careful though, because like bad weather affecting Santa’a flight, market conditions can change rapidly.

 

 

MARKETS

 

Stocks posted tepid gains on Friday despite all of the positive trade news.  Traders were ready to move on with a thumbs up, but vagueness still got the better of them.  The S&P500 climbed by +0.01%, the Dow Jones Industrial Average traded up by +0.01%, the Russell 2000 declined by -0.42%, and the NASDAQ Composite Index advanced by +0.20%.  Bonds also climbed and 10-year treasury yields fell by -7 basis points to 1.82%.  Higher yielding bond spreads (ccc rated) have been tightening, indicating a risk-on mood for investors (see bottom panel of chart 17 in my attached daily chartbook).

 

UP NXT

 

– Empire Manufacturing is expected to have jumped to 4.0 from 2.9.

– Markit Manufacturing PMI is expected to remain the same at 52.6 and the Services PMI is expected to have grown from 51.6 to 52.0.

– Minneapolis Fed President Neel Kashkari is speaking today.

– Later this week we will get a number of key housing numbers, Industrial and Manufacturing Production, The Leading Economic Index from the Conference Board, GDP, Personal Consumption, The PCE Deflator, the University of Michigan Sentiment indicator, and a number of region Fed reports.  Lots to take in!  Please refer to the attached economic and earnings release calendar for details.

 

daily chartbook 2019-12-16

econ numbers 12_16

earnings releases 12_16