Market Insights 12/13/2019

U.S. stocks eked out gains today even after a reading on November retail sales missed expectations. Equities resiliency in the face of the report was likely due to the details emerging on the U.S.-China “phase one” trade deal.

President Trump indicated that the deal includes “many structural changes and massive purchases of agricultural, energy and manufactured goods,” as well as a halt on the December 15 tariffs. However, the 25% tariffs will remain on $250 billion in Chinese imports and 7.5% will be put on much of the remaining imports.

The U.K. election resulted in a win for the Conservative Party. The win offers some continuity for the nation as it continues to grapple with Brexit. The results sent the British pound soaring verses both the dollar and euro.

Consequently, the dollar index was lower, but the dollar did gain ground on a majority of its major peers even as U.S. Treasury yields tumbled.

The Markets…

The Dow Jones Industrial Average was up 3 points to 28,015

The S&P 500 Index was up fractionally to 3,169

The Nasdaq Composite gained 18 points (0.2%) to 8,735

844 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil added $0.89 to $60.07 per barrel and wholesale gasoline was $0.03 higher to $1.66 per gallon

The Bloomberg gold spot price increased $8.90 to $1481.20 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.2% to 97.19

Markets were up for the week, as the DJIA added 0.4%, the S&P 500 Index advanced 0.7% and the Nasdaq Composite led the way with a 0.9% gain

Retail sales miss, import price inflation mixed

Advance retail sales for November rose 0.2% month-over-month, versus the Bloomberg forecast of a 0.5% increase, and October’s 0.3% gain was revised to a 0.4% increase. Last month’s sales ex-autos ticked 0.1% higher m/m, compared to expectations of a 0.4% gain and October’s upwardly-revised 0.3% rise. Sales ex-autos and gas came in flat m/m, compared to estimates of a 0.4% gain, and October’s 0.1% increase was adjusted to a 0.2% rise.

Treasuries were solidly higher on the day with the yield on the 2-year note declining 5 basis points to 1.60%, the yield on the 10-year note falling 8 bps to 1.82% and the 30-year yield dropping 6 bps to 2.26%.

The Import Price Index increased 0.2% m/m for November, matching projections, and following October’s unrevised 0.5% decline. Compared to last year, prices dropped 1.3%, compared to forecasts of a 1.2% decline and October’s unrevised 3.0% fall.

U.K markets cheer election results; Europe mixed; Asia higher

European equities finished mixed, with the markets trimming an early advance. U.K. stocks rallied on the general election results that showed Prime Minister Boris Johnson’s Conservative Party winning in decisive fashion. The election results means a “soft Brexit,” is likely, allowing the U.K. to leave the EU with a deal that avoids trade disruption for the next year, and potentially reducing downside risks to the global economy. The British pound surged versus the U.S. dollar on the news. Bond yields in Europe were lower, but did not fall as much as yields in the U.S.

The U.K. FTSE 100 Index rallied 1.1%, Germany’s DAX Index gained 0.6%, France’s CAC-40 Index rose 0.5%, and Spain’s IBEX 35 Index advanced 1.0%, while Switzerland’s Swiss Market Index fell 0.2% and Italy’s FTSE MIB Index decreased 0.3%.

Asian stocks rallied broadly. Equities in the trade sensitive region were bolstered by details emerging that the U.S. and China are closing in on a “phase one” trade deal.

Japan’s Nikkei 225 Index jumped 2.6%, with the yen falling decisively, and even as the nation’s Q4 Tankan Large Manufacturing Index fell more than expected. However, the Tankan non-Manufacturing Index came in at a higher-than-projected level. China’s Shanghai Composite Index rose 1.8% and the Hong Kong Hang Seng Index rallied 2.6%. Australia’s S&P/ASX 200 Index rose 0.5%, South Korea’s Kospi Index advanced 1.5% and India’s S&P BSE Sensex 30 Index traded 1.1% to the upside.

Stocks continue to grind higher as uncertainties ease

Some key uncertainties eased, helping the S&P 500 Index post the ninth weekly gain out of ten. Trade cooled on multiple fronts with the long-elusive U.S., Mexico, Canada trade agreement (USMCA) getting the go ahead for a House vote, while a “phase one” U.S.-China deal finally was confirmed by the world’s two largest economies.

The markets found support from the monetary policy front as well, with the Fed signaling that it will likely be on hold through next year and the European Central Bank sticking to its highly accommodative monetary policy stance.

Another positive catalyst came in the form of a worst-case U.K. Brexit scenario being taken off the table by the decisive victory for Prime Minister Boris Johnson. However, the weekly advance seemed be kept in check as the U.S.-China deal appeared to not deliver a deep enough rollback of existing tariffs, and global economic data remained mixed. For the week, the U.S. dollar fell, Treasury yields and gold slipped, and crude oil prices modestly extended last week OPEC-fueled rally.

Most sectors were higher to close out the week, with tech stocks leading the way on the cooled trade uncertainties, along with energy, financials and consumer discretionary sectors. But real estate issues were noticeable underperformers.

With the Fed out of the way, trade uncertainty easing, and Brexit concerns soothed, next week the economic calendar will likely generate heightened attention. Housing will be in focus, as the NAHB Housing Market Index, housing starts and building permits, and existing home sales will hit the tape, while we will get final revisions to Q3 GDP and the December University of Michigan Consumer Sentiment Index.