The Market Today
Chinese Exports Halve Expectations; CPI and Retail Sales Headline Otherwise Quiet Week
by Craig Dismuke, Dudley Carter
Quiet Start to Quiet Week… : A fairly quiet week starts with a quiet Monday. The only report on today’s calendar is the October JOLTs job openings report. Job openings are at their second-highest level on record and are expected to remain strong. The JOLTs data lags other labor indicators. Some of those more timely indicators have turned a bit weaker later but that is unlikely to show up in the JOLTs data for another month.
Except Wednesday’s CPI and Friday’s Retail Sales Reports: Later in the week, the big reports will come on Wednesday and Friday, the November CPI data and November’s retail sales report. The CPI report is likely to be the only report between now and December 19 that could change Fed officials’ opinions on a fourth rate hike, and even that would require a disastrously weak report.
Overnight – Trade Remains a Focus as U.S. Equities Try to Bounce Monday: Trade worries dragged down global markets again overnight with the most recent concerns centered on disappointing Chinese trade flows and another hard line on the 90-day tariff hiatus. China’s CSI 300 slipped just over 1% Monday while the rest of Asia’s key indices posted similar or steeper declines. With all the focus lately on the trade dispute between the U.S. and China, November’s Chinese trade flows added the latest iron to the fire of fears global growth could be slowing. Data over the weekend reported significant decelerations in trade flows into and out of China. Exports rose 5.4% from a year ago, just over half of the 9.4% pace expected and the slowest since March. Imports were even more disappointing, up just 3.0% while economists had expected a 14% increase. The growth in imports was the weakest since October 2016. The USTR said the Huawei CFO situation, which heated up again over the weekend as China called the action “unreasonable” and “nasty” and summoned ambassadors from Canada and the U.S., shouldn’t impact trade talks. However, he did say the 90-day tariffs truce was a hard deadline. European markets are also weaker while U.S. futures have slowly erased a steep early drop to trade back near unchanged. Most core sovereign yields had inched higher, except for in the UK where disappointing economic data and reports of a delayed Brexit vote has pushed down yields in the region and sent the Pound to its weakest level since June 2017. The 2-year yield was up 1.6 bps at 2.73%, still holding above the 5-year yield, while the 10-year yield added 0.9 bps to 2.85%.
ICYMI – December 7, 2018 Weekly Market Recap: Markets were volatile last week as investors responded to countervailing developments on the U.S.-China trade relationship and increased uncertainty about Fed policy in the new year, both of which again overshadowed most of the week’s economic data. Global equities rallied early Monday after the U.S. said it had agreed to a 90-day truce on any new tariffs with China, but pared those gains after the Treasury curve inverted for the first time since the recession. Both the 2-year and 3-year yields closed above the 5-year yield. Mixed messaging from top U.S. advisers about the trade agreement’s details and early silence from Beijing weighed on sentiment Tuesday, sending stocks down more than 3% and the 2y10y spread to a new cycle-low of 9 bps intraday. After closing Wednesday for the funeral of President H.W. Bush, market volatility picked up where it left off with the Dow tumbling 780 points Thursday before snapping back to end down less than 80. The early sell-off was sparked by reports the CFO of a major Chinese tech company had been detained on behalf of the U.S. for violating Iranian sanctions. The recovery ensued as tech companies stabilized and the WSJ released a story saying the Fed was considering signaling a “wait-and-see” approach to policy in 2019. Friday’s jobs report would seem to allow for more patience, as payroll growth (+155k) was steady but slower than expected (+198) and the unemployment rate (3.7%) and average hourly earnings (3.1%) held cycle-best readings but didn’t accelerate. Nonetheless, stocks ended an uncertain week on a down note with the S&P down 2.3% Friday which extended its weekly loss to 4.6%, the largest since March. The Dow and S&P 500 turned negative for the year. The 2-year yield closed at its lowest level since September (2.71%), the 5-year yield fell to its lowest since May (2.689%), and the 10-year ended at its lowest since August (2.85%). Fed Funds futures finished the week pricing in 67% chance of a December hike and roughly even odds of one more beyond that (terminal rate 2.57% in December 2019.) Click here to view the full recap.