Positives
- The US and China have FINALLY reached a phase one trade deal. Hopefully our biggest concerns about theft and forced IT sharing are addressed but only time will tell. The US farmer can breath a sigh of relief that their once biggest customer is back and can add one day to the pace of $26b per year of products they were buying before this trade spat. The December tariffs are off the table and the September ones get a reduction in the rate. Lastly, hopefully we’ve taken off the table the possibility of escalation along with this deescalation and that will be enough to incentivize American business to do the things like hiring and capital investment that they’ve been holding off on while tensions were high.
- Boris Johnson now has a solid mandate to both exit the EU and negotiate a trade deal.
- PPI in November was more muted than expected with no change at the headline level and a 2 tenths decline in the core rate, both below expectations of up .2% for both. Versus last year, the core rate was up by 1.3% y/o/y vs 1.6% last month and vs the tough comparison of 2.7% last year.
- Duke University released its quarterly survey of CFO’s and for the fourth quarter its confidence index did improve to 66.6 from 62.6 in Q3 which was the weakest since Q3 2016. The peak in this cycle was in Q1 2018 when it reached 71.2. More than half still expect a recession to happen next year “coinciding with the timing of the presidential election.”
- The NFIB small business optimism index for November did improve to 104.7 from 102.4 and that matches the best since May. For perspective, this figure averaged 106.7 in 2018. The NFIB continues to point to lower taxes and less regulatory pressure as the main catalysts for boosting small business confidence.
- In the Japanese Tankan report, the service sector came in better than estimated.
- Taiwan did report an upside surprise to its November trade figures with both exports and imports exceeding expectations. Helping exports was the pick up in semi shipments to China who are trying to replace US products.
- The December ZEW investor confidence figure in the German economy improved to 10.7 from -2.1 and that was well above the estimate of .3. Current conditions though remained firmly below zero at -19.9 but that was 2 pts better than expected. ZEW said the gains “rests on the hope that German exports and private consumption will develop better than previously thought…The rather unfavorable figures for industrial production and incoming orders for October, however, show that the economy is still quite fragile.”
- For October, Germany said its exports rose 1.2% m/o/m, better than the estimate of down .3%. The upside was driven by exports to non EU countries.
Negatives
- On the completion of the trade deal, we are still left with tariffs on about $360b worth of Chinese exports that American businesses pay for. That tax totals $71.5b per year, not much of a difference from the $80b they were paying before this agreement. Yes, some of that will be eaten by the Chinese but much will also be absorbed by US companies. And, rather than taking off these remaining tariffs if China adheres to the phase one agreement, our enforcement mechanism, it seems that the only time they might come off is upon a phase two deal. Call me skeptical on a phase two getting done. Finally, just as we were when this whole battle started, we are still reliant on China’s desire and ability to deliver but there is nothing we can do about that.
- Core retail sales in November rose just .1% m/o/m, two tenths below expectations and down from .3% growth in October. Versus November last year core sales were up only 3.2% vs 4.6% growth last November and down from 4% growth in October, 4.4% in September and 5.1% in August.
- Initial jobless claims spiked to 252k from 203k last week and that is well more than the estimate of 214k. That is the highest print since September 2017. Smoothing out the holidays, since the prior week was very low, puts the 4 week average at 224k from 218k last week and that is the most since May. Delayed by a week, continuing claims fell by 31k after rising by 56k in the week prior.
- The Consumer Price Index for November rose .3% m/o/m and .2% at the core. The headline y/o/y increase is now 2.1% from 1.8% in October and the core rate is higher by 2.3% y/o/y, the same pace as last month. This marks the 21st month in a row with a core CPI rate that has a 2 handle. Services prices ex energy rose 3% y/o/y again driven by higher healthcare costs and rents. Healthcare insurance prices in particular rose 20% y/o/y. Good prices remain subdued and were flat m/o/m and up just .1% y/o/y.
- The Atlanta Fed’s November ‘core sticky CPI’ rose to 2.77%, the highest since 2008.
- Cleveland Fed’s trimmed CPI figure for November rose to the highest level since early 2012 at 2.4%.
- In the Japanese Tankan report, manufacturing for both large and small manufacturers was soft and below expectations.
- Japanese October core machinery orders fell 6% m/o/m, well worse than the estimate of up .5%.
- China said the continued upward pressure in food prices drove a 4.5% y/o/y increase in its CPI for November vs 3.8% in October and two tenths more than expected. Food prices spiked by 19.1% y/o/y driven by an 110% rise in pork prices but taking out both food and energy has prices up just 1.4% y/o/y. Producer prices fell by 1.4% y/o/y, one tenth less than expected but off a 2.7% y/o/y comp last November.
- Aggregate financing in China, after falling sharply in its pace in October, came in at 1.75 Trillion yuan, above the estimate of 1.485 Trillion and was mostly led by bank loan growth as the shadow side shrunk. Money supply growth, as measured by M2, rose 8.2% y/o/y, 2 tenths less than expected and just above the lowest level in decades.
- China exports in November fell 1.1% y/o/y, weaker than the estimate of up .8%. Exports to the US in particular fell by 23% y/o/y. Imports though surprised to the upside with a .3% y/o/y increase versus the forecast of down 1.4%. Part of that however was a 41% increase in the value of soybean imports, most likely much from the US as they resumed purchases and which drove a 2.7% overall increase in imports from the US.
- China car sales data saw a 4.2% y/o/y decline in sales in November. That’s the 17th month in the past 18 with y/o/y drops.
- Industrial production in the euro area in October fell .5% m/o/m as expected and 2.2% y/o/y. It’s now a full 12 months of negative y/o/y activity.
- The UK economy saw no growth in the 3 months ended October from the prior 3 months. This is also the first time they’ve had 3 straight months of no growth since 2009.
- We lost Paul Volcker, a central banker that focused on the long term consequences of short term policy moves and was not afraid to suffer in the short term for the benefits of the long term.