The U.S. and China Signed Phase 1 of Trade Deal… The U.S. will restrain from more tariffs and the Chinese will better protect intellectual property and buy more U.S. goods and services.
What it means – This one’s a little tricky. The U.S. won’t reduce the tariffs on $360 billion worth of goods, but we won’t put more on, either. The Chinese agreed to better protections for patents, etc., and agreed to end the practice of forcing companies to hand over technology in exchange for access to their markets. The Chinese also agreed to ramp up their purchase of U.S. crops, energy, and other items. But without a significant increase in domestic buying, they’ll either stockpile the stuff, which seems unlikely, or reduce what the buy from others. It looks like we might get higher sales at the expense of other providers.
Farmers and frackers look like winners, which is great. Outside of those two areas however, the deal probably won’t mean much in terms of actual commerce. However, it does signal a move toward resolution, which gives investors hope for lower tariffs down the road.
The House Sent Articles of Impeachment to the Senate… By law, the Senate must take up the articles within a few days. With the Martin Luther King, Jr. holiday on Monday, the trial is expected to begin on Tuesday or Wednesday.
What it means – It’s political theater, but not very meaningful for the markets. The Republicans hold 53 seats to the Democrats’ 47. It takes 67 votes in the Senate to convict the president and remove him from office, which seems almost impossible. However, four Republicans indicated they’d like to hear witnesses, so there might not be a simple majority that votes to short circuit the trial by voting to end it after opening remarks. The proceedings are likely to generate a lot of light, but very little heat. In the end, Trump will claim complete exoneration.
Consumer Prices Up 2.3% in 2019… Both overall and core inflation as measured by the consumer price index (CPI) increased 2.3% last year.
What it means – It was the highest inflation since 2011! But that says more about how low inflation has been over almost a decade than it does about high prices last year. Used vehicle and airline fares fell, but health care costs jumped 4.6%, mostly driven by prescription drug prices. Food prices dipped, but restaurant costs increased, most likely pushed by wage law changes. While inflation remained tame, so did income. So, inflation-adjusted income rose a mere 0.7% last year, which is odd given the low rate of unemployment.
The Fed doesn’t watch CPI, instead it focuses on personal consumption expenditures (PCE). We’ll get that number at the end of the month, but it runs lower than CPI and is expected to be around 1.7%. It looks like the Fed won’t be worried about inflation anytime soon.
Retail Sales Up 0.3% in December… The report just missed the 0.4% expectation, but still showed strength at the end of the year.
What it means – Higher retail sales were widely expected given the many metrics of store traffic and online sales that we watched over the last 45 days. Every major group showed an increase, except auto dealers and department stores, which again, is no surprise. For the year, retail sales jumped 5.8%, just above the 30-year average. We dropped more money on everything from electronics to cocktails and pushed a lot of our shopping online. Even though e-commerce sales expanded just 0.2% in December, they rose 20% for the year.
Earnings Season Kicked Off With Mixed Results… JPMorgan had a great fourth quarter, but Bank of America failed to meet expectations and Wells Fargo still can’t make any headway.
What it means – The banks reported mixed numbers, showing that traditional trading firms like JPMorgan were able to weather the low-interest rate environment, while regular banks were suffering with a lower net interest margin (the difference between deposit and loan rates). The next several weeks will give us a look at how the year wrapped up for Corporate America and, more importantly, what they think lies ahead. Earnings for last year were expected to be down 3% to 4%, but earnings for this year are expected to increase around 9%. If companies guide lower than that, it could be a problem for the markets.
December Housing Starts Exploded Higher, Up 16.9%… Multi-family starts jumped more than 32%, while single-family starts increased 11.2%.
What it means – Housing starts rose to an annual pace of 1.61 million, the highest level since December 2006, well beyond the forecast for 1.375 million. The numbers are a great sign but must be taken with a grain of salt. Due to winter weather, December housing starts are seasonally adjusted, which gives small changes outsized importance. But there’s no doubt we’re headed the right direction in terms of creating new inventory that will be available in the important spring selling season. One note of caution in the release, housing permits took a nose dive for some reason, down almost 4% for the month. Overall, realtors should take heart in the figures, which point to more homes on the market in April and May as mortgage rates remain favorable and wages trend higher.
A Majority of Americans Favor a Wealth Tax… According to a new Reuters/Ipsos poll, 64% of Americans strongly or somewhat agreed that “the very rich should contribute an extra share of their total wealth each year to support public programs.” The results were similar across gender, race, and income lines. Democrats were more in favor, at 77%, but even 53% of Republicans agreed with the idea.
Data supplied by Dent Research/Delray Beach Publishing
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