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December
13
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Week In Review

China

Both the U.S. and Chinese governments stated that the text of a Phase 1 deal has been agreed and that President Trump has signed off on it.  Details are not currently available, but both sides indicate that China will increase purchases of U.S. agricultural products and improve intellectual property protections, while the U.S. will cancel the tariff increase scheduled for this Sunday and partially roll back some of the tariffs currently in place.  U.S. equity markets rose on the news and Treasury yields jumped higher.

Our Take

Any de-escalation of the trade conflict is welcome news, especially one that includes a reduction in tariffs.  Once this Phase 1 agreement is implemented, the key questions will be whether or not it is followed with additional agreements on much more difficult issues and if Chinese growth stabilizes and global manufacturing activity rebounds.


UK Elections & Brexit

Boris Johnson’s Conservative party won a significant majority in the House of Commons.  Labour lost over 70 seats in its worst showing since 1935 as many of the traditional industrial constituencies abandoned Corbyn and voted to support Brexit.  The pound and UK equities rallied significantly on the news.

Our Take

This result will allow Johnson to pass Brexit legislation in the very near term, and it will give him more flexibility in negotiating the future trade relationship with the EU.  The election results also remove both the immediate threat of a Corbyn-led government and most likely reverse the recent hard-left movement of Labour leadership and election platforms.


Retail Sales

November retail sales posted a disappointing 0.2% increase.  Expectations had been for an increase of 0.5%.  The retail sales control group, used to calculate GDP, rose just 0.1%.

Our Take

The consumer has been carrying the U.S. economy, meaning any news of a slowdown is concerning.  Black Friday sales were reportedly strong, so there is a chance that this retail sales report is an aberration.  One bad report does not make a trend but future reports, along with anecdotal holiday sales reports, will be heavily scrutinized.


The Fed

In a highly anticipated move, the Federal Reserve Open Market committee (FOMC) announced its decision to maintain the federal funds rate at the current range of 1.5% to 1.75%.  In a unanimous vote, the committee judged that its current monetary policy stance is appropriate to support sustained expansion of economic activity.  Looking forward, the new “dot plot” from the Summary of Economic Projections shows the median expected range for the fed funds rate to remain at 1.5% to 1.75% by the end of next year, signaling the Fed may not move at all in 2020.

Our Take

After lowering rates at its three previous meetings, the Fed is holding rates steady.  Although willing to act should economic conditions worsen, the Fed appears to be content with leaving monetary policy on hold through next year.


Inflation

The CPI rose 0.3% in November, while the PPI was unchanged.  Year-over-year the CPI is up 2.1%, while the PPI has increased 1.1%.

Our Take

There is really nothing to see here.  At the risk of sounding like a broken record, inflation remains subdued despite low unemployment.


Municipals

Municipal bond sales have risen 24% in 2019 compared to last year according to Bloomberg.  In addition, analysts surveyed indicated that the surge in issuance will continue in 2020.

Our Take

New municipal issuance has increased in 2019 following a slowdown in 2018 after the change in the tax laws.  State and local governments are taking advantage of lower borrowing costs.  Record low interest rates and demand for tax-exempt securities have led municipalities to issue new bonds and also refinance existing debt.


All expressions of opinions are subject to change without notice in reaction to shifting market conditions.  All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.  Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice.