The Market Today

TODAY’S CALENDAR

WSJ Says Officials “Laying Groundwork” for December 15 Delay: A report this morning from the Wall Street Journal indicates that the December 15 deadline for the next round of tariff increases will possibly be delayed.  According to the article, “U.S. and Chinese trade negotiators are laying the groundwork for a delay of a fresh round of tariffs set to kick in on Dec. 15, according to officials on both sides, as they continue to haggle over how to get Beijing to commit to massive purchases of U.S. farm products President Trump is insisting on for a near-term deal.”

Small Business Sentiment Improves Despite Trade Deal Proving Elusive: Small business optimism jumped more than expected in November, back up to near the high for the year despite lingering uncertainty about trade policy.  The NFIB’s headline index increased 2.3 points to 104.7, putting confidence near the low end of the 2018 range, in the middle of the 2017 range, and well above any pre-Trump-era readings for this cycle.  The report saw positive results for businesses who are planning to increase employment (+3), who expect the economy to improve (+3), who believe now is a good time to expand (+6) and who anticipate better earnings (+10).  However, respondents expecting better real sales fell 4 points.

Productivity Slows in 3Q after Two Solid Quarters: The final revision to productivity and labor costs for 3Q showed productivity revised up from a discouraging -0.3% to a still-discouraging -0.2%.  With the soft gains in productivity, unit labor costs rose 2.5%, revised down from the initial estimate of 3.6%.  The weak productivity figures take some optimism from the first two quarters’ productivity which appeared to show signs of acceleration. There was an unusually-large impact from self-employed hours worked which likely contributed to the slower productivity gains.  Whether this is temporary or not will be a basis for judgement on the efficacy of President Trump’s economic policies.

YESTERDAY’S TRADING

Positive Tone on U.S. Trade with China, North American Neighbors: Stocks fell Monday despite a flurry of trade-friendly headlines, as investors looked ahead to a week full of critical events that could alter the markets’ near-term path. China placed an order for U.S. soybeans after it said last week it would provide waivers to re-open some agricultural-related trade flows. The head of the USDA admitted he doesn’t know exactly when a trade agreement will be reached, but also said he doesn’t expect the additional tariffs to be put in place next week. After a spokesman for China’s Commerce Ministry said his government hopes for a deal “as soon as possible,” President Trump said the U.S. is doing well on working toward an agreement with China. Away from China, the president also said he believes U.S. lawmakers are making “a lot strides” toward passing the USMCA soon, a statement echoed by several other sourced reports. Nonetheless, the S&P 500 slipped 0.3% and Treasury yields edged lower. The 2-year yield inched 0.2 bps lower while the 10-year yield drifted down 1.7 bps.

OVERNIGHT TRADING

Equities Pull Back as Anxieties Pick Up: Not surprisingly, market anxiety intensified somewhat overnight on the eve of the first wave (U.S. CPI inflation, Fed decision) of significant economic events scheduled to take place over the next several days (ECB decision, U.K. elections, U.S. retail sales, December 15^th tariffs). In the absence of any meaningful headlines overnight, the nervousness got the best of equity investors in Europe who pared back risk positions Tuesday to send the Stoxx 600 down 1% before 7 a.m. CT. At the same time, U.S. equity futures weakened by around 0.3% when Europe opened after spending the entire Asian session modestly in positive territory. Most Asian markets pulled back as well after another report showed the negative effects on China’s economy of its trade troubles with the U.S. Following a weekend release which reported an unexpected decline in Chinese exports, producer price inflation, seen as a proxy for the capacity pressures felt by Chinese producers, contracted for a fifth month in a row and continued a three-year slowing trend.

Some Signs of Life in European Economic Confidence Measures: Despite softer equities, European yields were holding higher on the day. A day after one survey of investors in Europe bounced more than expected, a separate release tracking economic expectations of financial market experts strengthened the signal. The ZEW survey of economic expectations jumped more than expected to a 21-month high. At 7 a.m. CT, Treasury yields remained lower, with the 2-year yield down 1.0 bp and the 10-year yield 1.2 bps below Monday’s close.