President Trump Says China Trade Deal Is ‘Very Close’… The President heavily hinted that the two nations might reach a deal before the next set of tariffs take effect on Sunday.
What it means – Can we call it a rumor when it comes from the guy that holds the cards? It’s like starting a rumor about yourself. However we characterize the statement, Trump once again moved the markets, giving them a boost with his positive comments. Chipmakers, in particular, responded favorably. But the bump didn’t last long. After jumping a few hundred points on Thursday, the Dow finished flat.
We’ve noted for some time that simply ending the trade war won’t lead to a jump in business. Companies might be paying more for imported products, but that doesn’t hurt demand unless they pass through higher prices, which hasn’t been the case. If they end the trade war and no one cares, how will it make a difference? That might be why the market euphoria was so short-lived. The most difficult issues are unresolved: corporate espionage and protection of intellectual property.
The one sector feeling real pain and hoping for a deal is agriculture. Farmers have mitigated their losses through crop insurance and other means, but they’re still selling a lot less soybean to the Chinese. When a deal is done, those exports should ramp back up.
Fed Holds Rates Steady… The Federal Reserve kept overnight rates in a range of 1.50% to 1.75%.
What it means – The members voted unanimously to hold rates in the current range, which implies that all of them are satisfied with the balance between rates and current economic conditions. The broader group, including non-voting members, anonymously reported their rate expectations for the next several years. Most see rates unchanged for all of 2020 and then moving higher in 2021. The non-move was widely expected, as was the Fed’s guidance for little action in the months ahead, so investors yawned at the news. Bond prices rose Friday but are still off the September highs.
Consumer Prices Rose 2.1% in November… The consumer price index rose 0.3% last month, up 2.1% over last year. Stripping out food and energy, core inflation rose 1.8% over the year.
What it means – The cost of rent and medical care both rose 0.3%, and we paid higher prices for food, education, apparel, and used cars. New car prices dipped a bit as dealers increased incentives to move steel off their lots. The interesting item in this report was inflation-adjusted hourly wages, which were up just 1.1% over last year. That’s not much gain in a tight labor market where unemployment sits at 50-year lows.
Overall, the report shows modest price gains that probably will translate into a muted gain in the Fed’s preferred inflation measure, personal consumption expenditures. This is another reason the Fed might not raise rates anytime soon.
November Retail Sales Disappoint, Up 0.2% on Expectation of 0.5%… Excluding autos, retail sales were expected to increase by 0.4% but were only up 0.1%.
What it means – The numbers were disappointing given that consumer confidence remains high and unemployment remains low, but there’s a big caveat. Thanksgiving fell very late in the year which put fewer holiday shopping days in November. Before we call retail spending in 2019 a bust, let’s get through the holidays and estimate total spending.
Conservative U.K. Prime Minister Boris Johnson Wins Election, Cementing Support for Brexit… The election wasn’t close, giving Johnson a clear signal that the public wants him to complete the country’s divorce from the EU.
What it means – Declaring divorce is hard. Figuring out the details is downright impossible. The Brits and the EU can disagree on some trade issues, and even migration, but the immovable object remains the land border between Northern Ireland, which is part of the U.K., and Ireland, which will remain in the EU.
Johnson wants to ratify the deal he struck with the EU in October by January 31. That looks likely, but it won’t be the end of the process, it will be the start of a long goodbye. Look for a bit of a honeymoon period following this election, but then the reality of what lies ahead will set in and weigh on the British pound.
Florida Governor Rick DeSantis to Require All Florida High School Seniors to Learn Civics… The governor of the Sunshine State wants all Floridian kids to learn how the government works and will require that they pass an exam similar to the one taken by immigrants wanting to become American citizens. Some of the questions are easy, like who is the current president. Others are more difficult, such as how many amendments are there to the U.S. Constitution. It would be entertaining, and telling, if DeSantis asked parents to take the exam as well without their phones nearby to discourage cheating.
Data supplied by Dent Research/Delray Beach Publishing
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