The Market Today

China Lowers Tariffs in Another Positive Trade Headline


by Craig Dismuke, Dudley Carter

MARKETWATCH Video: There will be no MarketWatch video today due to the holidays.  We hope all of you are enjoying a happy holiday season!


TODAY’S CALENDAR

November Durable Goods Orders Report Disappoints but Signs of Better Future Investment: After a strong start to the quarter, durable goods orders fell off in November.  Headline orders were unchanged in November but October’s tally was revised down from +0.5% to +0.3%.  All told, orders were 0.2% weaker than anticipated through November.  As for the key indicator of future business investment, core capital goods orders, they rose 0.1% after a 1.1% gain in October.  Through two months, orders are showing a slightly better pace of investment.  However, the measure of current activity, core capital goods shipments, fell 0.3% and October’s tally was revised down from +0.8% to +0.7%.  Overall the report points to slightly better business investment in coming months but another weak quarter in the meantime.

Chicago Fed National Activity Index Rebounds: The Chicago Fed National Activity Index rose from -0.76 (the second weakest month since 2014) to +0.56 (strongest reading in 21 months) in the November report. The CFNAI is an aggregation of 85 different economic indicators including reports on 1) production and income, 2) the labor market, 3) personal consumption, 4) housing, and 5) sales and inventories. For context, when the CFNAI’s three-month average is above +0.70 following an expansion (or a one-month reading above 1.00), a period of more rapid inflation is expected to occur.  Even with the strong November figure, the 3-month average is now -0.25.


OVERNIGHT TRADING

Trade Headlines Show Further Progress Toward Signing Phase-One Deal: Global markets have exhibited a muted response to weekend developments showing the U.S. and China are pushing forward towards signing the phase-one trade agreement announced just over a week ago. Last week’s trading wrapped up with a tweet from President Trump that he had spoken the President Xi and the two were seeking a common date to sign the trade agreement. Then on Saturday, President Trump said, “We just achieved a breakthrough on the trade deal and we will be signing it very shortly.” His remarks led up to China’s announcement Sunday that it would lower tariffs on roughly 850 line items covering a range of goods, including products such as frozen pork, medicines, and semiconductors. Most of the reduced levies will begin on January 1 while those on certain tech goods will take effect on July 1.

Markets are Largely Unaffected by “New” Trade News: While those developments are a positive for continued progress toward the signing of a deal, markets took them mostly in stride. Equities were mixed across Asia and actually sold off on mainland China. Europe’s Stoxx 600 was unchanged near a record at 7 a.m. CT after recovering from earlier losses it registered at the open. Sovereign yields were also holding flat near Friday’s levels in the tepid response to trade news. Ahead of this morning’s important reading on U.S. business investment, a key growth component to watch in the new year, S&P 500 futures were up 0.2%, the 2-year yield had added 1.0 bp, and the 10-year yield was 0.5 bps lower. After the softer durable goods data, the 2-year yield fell back to unchanged and the 10-year yield moved to down 1.8 bps on the day.


NOTEWORTHY NEWS

ICYMI – December 20, 2019 Weekly Market Recap: Stocks went on a record run last week after the prior week’s phase-one trade agreement between the U.S. and China suspended new tariffs that had been planned to take effect on December 15th. The S&P 500 rose 1.7% and closed at a record in four of its five trading sessions. While the short-end of the Treasury curve remains locked in place by the Fed’s plan to leave rates unchanged for the foreseeable future, longer yields steadily pushed higher before stalling Friday. The 2-year yield added 2.6 bps to 1.63% as the 10-year yield climbed 9.4 bps to 1.92%, pushing the spread between the two to 0.29%, the widest since November 2018. Capping off a week of mixed economic data, consumer income and spending picked up more than expected in November while core inflation remained subdued at 0.14% MoM and 1.61% YoY. Click here to view the full recap.


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