The Market Today
Trade Deficit Continues to Shrink Along with Trade Volume
by Craig Dismuke, Dudley Carter
New Year Kicks Off with Busy Economic Calendar: This week’s economic calendar brings a handful of important reports during another holiday-shortened week. Two home price reports are scheduled for release tomorrow along with December’s consumer confidence report from the Conference Board. Friday will bring three important reports and a flurry of Fed news. November’s construction spending data is expected to show positive gains. December’s ISM Manufacturing index is expected to tick up from 48.1 to 49.0, staying below the critical 50 mark. And December’s auto sales data are expected to show a slight pullback in activity after a stronger-than-expected November tally. Also on Friday, the FOMC’s December Minutes are scheduled for release, along with comments from Barkin, Brainard, Daly, Evans, and Kaplan.
Trade Deficit Continues to Shrink, Adding to Short-Term Growth Projections: Already released this morning, November’s Advanced Goods Trade Balance surprised projections with the goods-only deficit shrinking from $66.5 billion to $63.2 billion. The deficit was expected to increase $2.2 billion rather than contracting $3.3 billion. Through two months of data, the goods balance points to trade, once again, being accretive to 4Q GDP. However, this is occurring as overall trade volumes continue to shrink.
Pending Home Sales Expected to Increase: At 9:00 a.m. CT, November’s pending home sales data are expected to show existing homes going under contract up 1.4%. Housing has benefited from the drop in rates in 2019 with sales of new and existing homes both having banner years.
Equities Stall after a Week of Records: After a week of records last week, global equities have taken a bit of a breather overnight, shifting the focus to a synchronized move higher in global sovereign yields. Both stocks and bond yields rose together early last week in holiday-thinned volumes, following remarks from President Trump about a “breakthrough” on the trade front and after China announced it would roll back tariffs on more than 850 products it imports from abroad. However, while stocks continued the set records past Monday, Treasury yields pulled back after strong auctions of 5- and 7-year Treasury notes on Tuesday and Thursday.
Bonds Yields Break Higher: Stocks have stalled Monday near record levels, but bond yields have pushed notably higher without an obvious catalyst. Despite strong gains in China, equities across the broader Asia-Pacific region were little changed. Near the halfway point of its session, Europe’s Stoxx 600 was down 0.3%. Bond yields, however, were catching up with the optimism that has boosted equities to new all-time highs. Around 7:45 a.m. CT, the U.K. 10-year yield had added 9.1 bps while Germany’s was 7.1 bps higher. Shorter yields had risen less, steepening curves to multi-month highs in most regions. Before a round of mostly second-tier economic reports in the U.S., the 2-year Treasury yield had inched up 2.4 bps to 1.61% while the 10-year yield had gained 6.0 bps to 1.94%. The spread between the two expanded to more than 32 bps as a result, notching its widest level since October 2018.