The ECB Confirmed It Will End Bond QE Program… The ECB kept rates steady at negative 0.40% and reiterated that it would stop adding to its balance sheet this month.
What it means – Well, that took a little longer than expected. When the ECB started buying bonds with newly printed euros almost four years ago, it forecast the program would cost $1.2 trillion and last about a year. Right. Instead, the central bank has been buying bonds for almost four times that long and spent about $3 trillion and didn’t get a lot for its money.
European growth is lower today than it was when the program started, and it doesn’t look like it will pick up anytime soon. The ECB forecasts 2018 GDP at 1.9% and next year’s growth at1.7%. Inflation also remains soft at 1.8% this year and 1.6% next year.
The central bank announced it will reinvest all principal payments will keep the bank’s bond portfolio steady. The euro should strengthen just a touch as the ECB stops pumping money into its economy, but Brexit fears could trump that trend.
Producer Prices Up 0.1% Even as Energy Slips… Energy prices at the wholesale level fell 0.5% last month, but other prices increased enough to push the overall rate up.
What it means – Wholesale prices increased 2.5% over last year and jumped 2.7%excluding food and energy. These numbers aren’t scary, but they do show that American companies are dealing with inflation. Eventually higher prices cut into profits, are passed on to consumers,or both. Lower profits concern investors.
Consumer Prices Flat in November, Up 2.2% Over Last Year… Excluding food and energy, prices increased 0.2% in November.
What it means – Just as with producer prices, the $20 drop in oil prices last month kept inflation at bay, and yet prices are still more than 2% above where they were last year.
Moderate inflation might be one of the Fed’s goals,but it’s not a friend to the average worker. American wages are up about 3.1%over last year, but inflation takes away all but 0.9% of that. The average household earns about $60,000. That extra $50 per month in purchasing power won’t go very far.
Equities Rebound as Trade Negotiations Continue… Following constructive talks between U.S. and Chinese officials, the Chinese have taken steps to dial down the trade tension.
What it means – Chinese officials announced that tariffs on U.S. autos would drop from 40% to 15%, boosting shares of companies like Tesla (Nasdaq: TSLA). The Chinese also made a large purchase of U.S. soybeans and moved to reformulate their “Made in China 2025” program.
Each step is meant to take some of the edge off the trade wars, which is boosting the U.S. markets as investors see a little light at the end of the tunnel. An end to the trade spat would be welcome news, but it doesn’t signal the all-clear for the U.S. markets. We still must contend with slow growth in the months and years ahead.
OPEC-Plus Agrees to Supply Cuts… OPEC and its agreeing partners, dubbed OPEC-Plus, agreed to dial back production early next year to the levels set in the summer of 2016.
What it means – And, nobody cares. At least, not yet. Just like in 2016, the OPEC-Plus members are pumping like crazy ahead of the commitment date so that they can get just a little bit more revenue in the door. The extra bit of cheating ahead of any supply cut keeps prices down.
At the same time, U.S. production continues at a record pace. But 2019 should bring significant changes. OPEC et. al. should reduce its output and the U.S. won’t be able to push production much higher because we don’t have the infrastructure to move more oil and gas. Expect energy prices to go up next year.
Goodyear Shuts Down its Venezuelan Plant, Pays Severance in Tires… The famous tire company finally gave up the ghost, succumbing to the same forces that have claimed other corporate victims in the beleaguered country, soaring inflation and scarce resources. Workers showed up on Monday to locked gates and a note.
Goodyear will pay very modest severance to some of the 1,200 workers, but all is not lost! The company will also give each worker 10 tires. In a country where inflation is more than 1,000,000%, receiving goods instead of almost useless currency is a blessing.
Data supplied by Dent Research/Delray Beach Publishing
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