The U.S. Economy Created 155,000 Jobs in November… The unemployment rate remained steady at 3.7%.
What it means – Great news! We fell well short of the 200,000 new jobs expected! If that sounds counterintuitive, well, it is. Investors are demanding perfection on several fronts, including inflation and interest rates.
If we’d created as many jobs as expected or, horror of horrors, exceeded the forecast, then the Fed might be persuaded to raise rates both in December and early 2019. Disappointing jobs numbers should keep the Fed on the sidelines and keep wage inflation from driving up consumer prices.
In the topsy-turvy world of investing, we don’t want too many people employed, or wages moving up too quickly, because that might induce the central bank to raise rates too fast, which might affect our returns. It can make your head spin just thinking about it.
Factory Orders Dropped 2.1% in October… Depressed by civilian aircraft and defense orders, factory orders dipped slightly more than expected.
What it means – Without civilian aircraft and defense, nondurable goods orders increased 0.3% while core capital goods remained flat after falling in August and September. Year-over-year gains are still up 6.9% which is great, but that’s down from 7.5% in September and a multi-year high of 10.3% in August.
Companies are ordering less as the effects of tax reform fades, which should keep GDP growth in check. The Atlanta GDPNow forecast sits at 2.7% for the fourth quarter.
Oil Prices Seesaw with OPEC Meeting and Inventory Draw… The OPEC meeting on supply quotas carried over to Friday while U.S. inventory fell much more than expected, down 7.3 million barrels.
What it means – Energy traders have become a pessimistic bunch. With U.S. inventories falling and OPEC members agreeing to cut supply, you’d think oil prices would be shooting higher. But that’s not the case. OPEC announced a deal, but then put off a decision on exact quotas until Friday. And while U.S. oil inventories dipped, product inventories, such as gasoline and distillates, increased. While these developments muddy the picture, the real culprit appears to be a combination of increased U.S. oil production and lower demand forecasts for 2019.
Last week, the U.S. began exporting more oil than it imports, which is a huge milestone that has to make foreign oil producers very, very nervous. But even with more domestic production and lower demand in 2019, OPEC and the other producers that agree to supply quotas should be able to drive prices higher in the weeks ahead.
Equities Plunge But Rebound on Rumors of Fed Pause… U.S. stocks were having their worst two days since February, with the Dow Jones falling 800 points on Tuesday, until the Wall Street Journal published a story forecasting the Fed would pause in raising rates after the December meeting.
What it means – We must be somewhere in West Texas using a Verizon phone, because obviously no one can “hear us now.” And it’s not just us.
We’re in a chorus of people who have predicted that the Fed would raise rates at the December meeting and then move to that always elusive “data dependent” state, which gives them the flexibility to keep rates on hold for many months. We suggested the news would give the markets a boost. Well, it did.
Unfortunately, we also think the good feelings will be fleeting as investors realize that a pause in rate hikes doesn’t stop the Fed from shrinking its balance sheet, doesn’t address our trade wars, and doesn’t increase GDP. However, potential home buyers should get a little relief on their mortgage rates.
U.S. Asks Canada to Arrest and Extradite Chinese CFO Wanzhou Meng… Ms. Meng is the CFO of Huawei, the second largest telecommunications company in China. The U.S. accused Huawei of breaching U.S. sanctions on sales to Iran.
What it means – The Iranian sanctions prohibit companies that do business with the U.S. from doing business with Iran. Huawei licenses technology from the U.S. and, according to American officials, sells hardware based on that technology to Iran, flouting the sanctions. What makes this case sensational is that the U.S. asked the Canadians to detain and extradite Ms. Meng instead of filing a grievance or lawsuit against the company. And a little fact that probably did not escape the notice of U.S. officials, Ms. Meng is the daughter of the Chairman and Founder of Huawei.
The move infuriated Chinese officials who saw the arrest as a heavy-handed move in the current trade spat. This definitely signaled the end of the rally based on the trade truce.
Secret Service Testing Facial Recognition Around the White House… Don’t worry! So far, the security agency is only comparing images to a database of volunteers who mingle in the crowds surrounding the White House. Of course, that’s only the first step.
The obvious goal is to use facial recognition to pick out individuals previously identified as posing a threat. You would expect that to include those who have made threats against the president or known terrorists, but what if it goes further? What if the list grows to include political enemies? For those worried that the government might abuse the technology and don’t want their image recorded, the Secret Service has a message, stay away from the area.
Eventually, if we don’t want our images recorded, we’ll be confined to our homes. But that’s OK with the government because they already know where we live.
Data supplied by Dent Research/Delray Beach Publishing
“When the facts change, I change my mind.
What do you do, sir?” ~ John Maynard Keynes
Our plan is “the plan will change.”
What is your plan?
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