Investors are searching for more answers about trade. Bears are saying with the G20 party in Argentina behind us, the market might be left with a hangover as skepticism surrounding a trade compromise circulates, writes Nell Sloane Tuesday in her Trading Notebook.
Bulls believe the recent rhetoric between President Trump and President Xi will be enough to stabilize global economic worries and create a macro tailwind into year-end.
Bulls are also pointing to the fact the U.S. dollar (USD) has weakened a bit and the 10-year yield has fallen back below 3%. There's now some questions and debate surrounding a flat or inverted yield-curve and the fact it tends to signal a bull market is approaching its final few months of growth.
There's obviously been some exceptions to this rule, like in late-1997, when yields inverted and everyone screamed “the sky is falling,” yet the bull market continued on for another two years delivering some of its largest gains.
Fed officials seem to have taken a less hawkish tilt as of late. Fed Chair Jerome Powell was scheduled to make his Congressional testimony Wednesday, but that has been rescheduled due to President H. W. Bush's funeral.
Other items of interest this week include the upcoming OPEC meeting in Vienna on Thursday and Friday. Most inside the energy markets suspect the oil leaders will announce some type of production cut in order to try and rebalance supply.
From what we understand, Russia will be on board with the OPEC and Saudi decision. What's perhaps more unclear is how much oil will continue being produced here in the U.S. Currently, U.S.
roducers are kicking out an unprecedented level of more than 11.5 million barrels per day. Keep in mind, with drilling activity still high, most analysts expect U.S. oil production to rise further in 2019. It will be interesting to see if our production hikes can match OPEC's expected cuts.
As for additional concerns here at home, there's still some unanswered questions about government funding.
Let’s not forget, there's no funding bill in place for portions of the U.S. government, which was threatened by Trump to shut down on Saturday, December 8. Again, the death of President Bush prompted the House of Representatives to take the whole week off. Instead of arguing about funding during the week of mourning, Congressional leaders have agreed to punt the deadline two weeks down the road to December 21, which happens to be right before many head home for the Christmas holiday.
From what I understand, President Trump wants $5 billion for new segments of a border wall with Mexico, but Democrats have stood firm so far in offering just $1.6 billion for a variety of alternative border-security measures.
Don't forget, when we come back from the holiday break, we will have a new Congress in office.
As for more traditional economic data, U.S. construction spending fell for a third straight month and the Purchasing Managers' Manufacturing Index also saw a bit of a drop in November.
There was some solid numbers as accelerating growth for new orders rose to a 6-month high, a rise in export orders hit a 9-month high and employment came in at the second highest rate so far this year.
It’s worth mentioning, the cost pressures for raw materials including metals, intensified in November with reports of pass-through is starting to hit consumers.
I should also note, sales of new vehicles in the U.S. slumped in November. Ford (F) sold 19.5% fewer passenger cars in the U.S. compared to November 2017, while SUVs registered a more modest 4.9% decline. The company’s total sales dropped -6.9%.
Keep in mind, GM (GM) announced last week that it plans to idle seven plants globally, including two that build small cars in the U.S., to reduce excess factory capacity. Japanese manufacturers Toyota, Honda and Nissan also reported weaker demand for passenger cars as total sales again slumped. Really the only bright spot is Fiat Chrysler Automobiles (FCAU) whose Jeep and Dodge Ram trucks showed growth.
Though total annual sales for the U.S. auto industry will look strong at yearend, I certainly see the industry changing and shifting in direction.
The remainder of the week will see updated Mortgage Application numbers, ADP Employment data, PMI Services Index, Factory Orders, Consumer Sentiment, and the highly anticipated monthly Employment Report scheduled for release on Friday.
U.S. financial and interest rate markets will be closed Wednesday in memory of President George H.W. Bush.
Cheers,
Nell
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