Equity and commodity markets posted only modest gains last week despite what seems to have been a newsworthy week on several political fronts.  Indications of a U.S.-Sino trade deal, a landslide victory for proBrexit conservative party in Britain, and the approval of the USMCA pact should all serve to mitigate uncertainties from the landscape as we look forward into 2020.  Risk markets didn’t move meaningfully on the news which means most of these developments were relatively priced in already. In other markets, interest rates fell slightly and the USD weakened, particularly relative to the British pound (+1.45%).

Market Anecdotes

  • POTUS announced the ‘Phase 1’ trade deal late last week.  The narrative from China and several questions regarding the details and scope left ample uncertainty but progress toward clearing the issue is a positive development.  Markets had no reaction to the POTUS announcement.
  • U.K. parliamentary elections delivered a landslide victory for the conservatives, paving the way for PM Johnson to proceed with a negotiated Brexit in 2020.
  • The FOMC meeting produced no changes to policy and made very clear they see no rate hikes on the horizon.  Consensus is no hikes through 2020 and a strong preference for ‘persistent and significant’ moves in inflation before changing course.
  • The Fed is expected to continue open market operations at least into second quarter in support of overnight lending markets.
  • Democrats in the House announced their approval of the renegotiated NAFTA, or USMCA pact with expectation of a vote prior to year-end.
  • Articles of impeachment have been delivered by the House and the markets remain unfazed.  The base case remains House impeachment, no Senate conviction, and a coin toss in November.
  • German PMIs look to be rebounding, seemingly having weathered the storm of a China slowdown, changes in EU emission standards, Brexit fallout, and U.S. auto tariff threats.
  • Bianco research noted the percentage of OECD CLIs over 100 (LT average) has turned notably higher (15.8%) in October, including each of the G3 economies for the first time since July 2017.
  • While Refinitiv Lipper reported $135.5b in equity mutual fund/ETF outflows so far YTD.  We’ve seen seven consecutive quarterly outflows and 2019 is on pace for the largest outflow on record (data to ‘92).
  • Arbor Research pointed out rising spreads in CCC segment of the junk bond market, noting the significant drop in the number of issuers and resulting industry concentrations as the primary driver.
  • Bloomberg reported that business debt grew at a 5.7% annual pace in 3Q to $15.987t while household debt slowed to 3.3% to $15.986t.  This is the first time since 1991 where corporate debt exceeded household debt, raising concerns about ripple effects of a slowdown.
  • WTI crude oil climbed back above $60 for the first time since mid-September when drone attacks on Saudi oil facilities sent prices sharply, but briefly higher.

Economic Release Highlights

  • The BLS reported headline and core CPI of 2.1% and 2.3% respectively.
  • November retail sales of 0.2% missed calls for 0.5% growth.
  • Producer prices as measured by PPI came in below consensus on virtually all subsets.  The headline and core measure of pipeline inflation came in at 1.1% and 1.3% respectively.
  • NFIB small business optimism index came in with an upside surprise at 104.7 (vs 102.9).