The Market Today
Phase One Deal Sees Some Tariffs Cut, Fails to Deliver Enough
by Craig Dismuke, Dudley Carter
Markit PMIs and Homebuilder Confidence: Today’s economic calendar will bring the preliminary December PMIs from Markit (8:45 a.m. CT) for both the manufacturing and services sectors. Both indices have improved in recent reports although both remain weak versus year-ago levels. At 9:00 a.m., the NAHB homebuilder confidence index is expected to hold at 70, potentially notching its sixth-best monthly report of the cycle. Unlike other indicators, homebuilder confidence has rebounded to a very strong level. Also on the radar, Minneapolis Fed Bank President Kashkari will speak on the economy and fiscal responsibility at 5:30 p.m. from Minnetonka, Minnesota.
New York Fed Index Keeps Run of Soft Manufacturing Reports Going: Already released this morning, the New York Fed’s regional report on manufacturing activity inched up from 2.9 to 3.5, slightly weaker than expected. Overall, the index remains soft and the most leading sub-index, the new orders index, fell from +5.5 to +2.6. On a positive note, the forward expectations for capital expenditures index did tick up to one of its stronger readings of the year.
Markets Start Better Than They Could Have Following Phase-One Deal: The results from Monday’s global session have looked quite different than they could have following last week’s trade agreement between the U.S. and China that avoided another round of tariffs from taking effect on Sunday. Although many of the deal’s details remain unclear, a flurry of headlines last Thursday and Friday signaled a deal had been reached that would include China purchasing more U.S. goods and beginning to address other areas of concerns, while the U.S. would cancel new tariffs on Sunday and cut the most recent levies put in place by half.
Sentiment Improves as New Tariffs Avoided: A broad measure of stocks across the continental Asia inched up 0.2% while China’s CSI 300 slightly outperformed the average with a 0.5% improvement. Helping nudge Chinese equities higher than the crowd, data showed industrial production and retail sales in the world’s second-largest economy topped expectations in November. Equities’ gains have been more convincing across Europe, where the Stoxx Europe 600 has outpaced its 1.1% gain last Friday with a 1.2% jump Monday to a new all-time high. Investors hope the gain will jolt the European economy out of its moribund state, which has plagued the region over the last couple of years and appears to have continued in December. While Markit’s service PMI held steady in December at 50.6, the manufacturing index fell 1.0 point unexpectedly to 45.9, an eleventh consecutive contraction. Just before 8 a.m. CT, U.S. equity futures were 0.5% higher, the 2-year yield rose 2.3 bps to 1.63%, and the 10-year yield added 2.8 bps to 1.85%.
ICYMI – December 13, 2019 Weekly Market Recap: Inflation was broadly firmer in last week’s November CPI report, but overall pressures remain unthreatening. Retail sales data reflected a slowdown in consumer spending, despite early-holiday shopping. The Fed cemented its October pause with December’s dot plot, which showed all but four officials expect rates to remain changed in 2020. The ECB’s decision was unexciting and shed no new light on the policy outlook. But markets were almost entirely focused on developments on two of the biggest uncertainties overhanging the economy for the last couple of years. Following a flurry of headlines throughout the week, the U.S. and China announced Friday they had reached a phase-one trade agreement that would avoid new tariffs taking effect on Sunday. Also on a positive note, U.K. PM Johnson secured a stronger-than-expected majority in Thursday’s parliamentary elections, paving the way for Brexit to move forward after years of gridlock. Despite all the activity, however, U.S. markets ended the week hardly changed. Click here to view the full recap.