The Market Today

THIS WEEK’S CALENDAR

Important Week for Data, Trade, and Brexit: There are no economic reports on the calendar this morning.  The most important reports are scheduled for Wednesday, the November CPI inflation report, and Friday, the November retail sales data.  Given the economy’s dependence on the consumer, the first look at holiday shopping is as critical as ever.  On Wednesday, the FOMC will make its final, scheduled monetary policy decision of the year. Expectations are for no change in policy.  Going forward, markets continue to price in a greater chance of a cut than a hike in 2020.  As discussed below, Thursday will bring the U.K. election results and we expect to hear headlines throughout the week on trade with Sunday’s tariff deadline looming.

OVERNIGHT TRADING

A Quiet Start to a Week Expected to Be Anything But: Markets are mixed overnight in a relatively-uneventful start to what is surely to be a lively week of important economic events. Asian equity markets edged 0.3% higher while European stocks slipped 0.2% in the first half of trading. Data overnight showed Chinese exports contracted by more than expected in November, -1.1% versus +0.8%, while imports posted a surprise 0.3% increase. Contrary to the decline in China, exports from Germany jumped 1.2% in October, much better than the forecasted 0.3% decline. In the midst of persistently-disappointing European data, a surprisingly-strong measure of investor confidence, a seven-month high of 0.7 compared with expectations for another decline to -5.3, was a welcomed surprise and reflected a solid pick-up in expectations for the first half of 2020.

Headline Risk is High with Brexit Vote and Looming Tariffs: Nonetheless, sovereign bond yields moved lower amid well-heeded early-week caution. In addition to the critical U.S. economic events scheduled this week, voters in the U.K. head to the polls Thursday to cast their vote in parliamentary elections, a vote which is essentially seen as a second referendum of sorts on Brexit and will be critical in the next steps of the U.K.’s future. Casting a shadow over all of those events is the December 15^th deadline for the U.S. and China to reach some level of agreement to keep 15% tariffs on roughly $150B additional Chinese imports from taking effect. At 7:30 a.m. CT, the 2-year Treasury yield was 0.4 bps higher at 1.62% while the 10-year yield had dropped 1.6 bp to 1.82%.

NOTEWORTHY NEWS

ICYMI – December 6, 2019 Weekly Market Recap: Stocks were mixed last week but yields moved higher in steepening fashion after a surprisingly-strong jobs report assuaged fears of an acute slowdown of the labor market. There were mixed headlines on trade early in the week that buffeted market sentiment on Tuesday. Some firmer foreign economic data was neutralized somewhat by weaker-than-expected U.S. ISM data that concerned about more domestic slowing in November. A surprisingly-weak ADP report raised investor alertness on Wednesday but the third-lowest level for initial jobless claims since 1969 calmed those concerns. However, yields shot higher to end the week following a nearly blemish-free payroll report which showed 266k jobs were added in November, a still-solid 212k if a GM-driven rebound for manufacturing is excluded, and the prior two-month tally was revised up 41k. Click here to view the full recap.