Door Buster

Door buster.  Stocks went on sale on Black Friday due to trade jitters.  Consumers lined up to make this holiday retail season one for the record books.

 
NOTEWORTHY
 
  • Shop ’till you drop.  The holiday retail rush is on and, as suspected, consumers are cued up to make this one a record breaker.  I write often about this lopsided economic expansion in which individual consumers are doing all the heavy lifting while corporations are taking a wait-and-see approach.  This is not how it normally works, but what is actually normal anymore?  The US has enjoyed record low borrowing rates prompting consumers to extend their buying power with credit.  Record low unemployment continues to prop up consumer confidence, despite anemic wage growth.  The trade war has wrought plenty of havoc on businesses but has yet to noticeably affect the consumer.  At this point the only thing we have to fear, is well… fear itself (thanks FDR), and thankfully consumers have remained fearless.  Adobe Analytics estimates that Black Friday online sales topped $7.4 billion and Cyber Monday (today) sales are expected to exceed last year’s figure by +19%.  This is good news for retailers, consumer credit providers, and the overall economy.  Yes, the US economy is a bit sluggish, but the consumer is still getting the job done.  More numbers to come in the days and weeks ahead.
  • It’s just politics.  As reported here last Friday, President Trump signed the Hong Kong Human Rights Act into law upsetting China, which responded with the usual litany of threats.  The move prompted the selloff in stocks in Friday’s abridged session.  Many are left wondering if the US and China are so close to signing the Phase One deal, why would the President rush to sign a largely symbolic, but incendiary act.  Perhaps there are still some major hurdles to overcome by the two sides.  WHILE YOU SLEPT the Chinese official Manufacturing PMI was released and came in above expectations at 50.2, with the first reading above 50 since April.  Recall that PMI’s above 50 represent growth while readings below represent contraction.  Also WHILE YOU SLEPT, The Global Times reported that China wants existing tariffs to be rolled back as part of a Phase One deal and that simply keeping further tariffs from advancing is not enough.  The Times further stated that interference with China’s internal affairs and pressuring it to purchase more US commodities could jeopardize the deal.  It should be noted that news outlets in China are an extension of the government, so the “reporting” should be taken seriously.  Still wondering… do we have a deal yet?
  • Crude language.   Crude oil has been all over the map in recent weeks.  Saudi Aramco, the Saudi state owned oil concern is in the process of offering shares to the public and as of last Friday, the company has drawn bids of $44 billion, exceeding the company’s expectations and valuing it at $1.6 trillion.  That’s big.  As one might expect, the success of the deal is closely linked to the price of crude oil, which in years passed could be readily controlled by the country.  Today, there are other players such as US shale oil producers and Russia, making it more of a challenge to control supply with a cartel.  This week, OPEC+ will meet to discuss policy.  The “+” means Russia, by the way.  Saudi Arabia is hoping to cut supply in order to push prices up (no shocker here) and Russia is making noise that it would like to keep production constant.  While supply pushes prices up, it also means less sales, and Russia appears content with current levels.  US shale producers act completely independent of the cartel adding further variability to the equation.  Expect more volatility in the energy sector in the week ahead as ministers meet in Vienna and the Aramco IPO closes.
 
THE MARKETS
 
Stocks slipped on Friday in response to Trump’s signing the Hong Kong Human Rights Act into law.  The S&P500 dropped by -0.40%, the Dow Jones Industrial Average slipped by -0.0, the Russell 2000 traded off by -0.59%, and the NASDAQ Composite Index went down by -0.46%.  Bonds advanced and 10-year treasury yields climbed by +1 basis point to 1.77%.  WTI crude oil dropped by -5.06%.
 
NXT UP
 
– Markit Manufacturing PMI is expected to be 52.2, same as last month.  
– ISM Manufacturing PMI is expected to come in at 49.2, up slightly from last month’s 48.3.
– Construction Spending is estimated to have grown by +0.40% month over month compared to last month’s +0.5% growth.
– In the week ahead we will get services PMI, Factory Orders, Durable Goods Orders, Non-Farm Payrolls, the Unemployment Rate, and the University of Michigan Sentiment Index. See the attached economics and earnings release calendars for details.
 

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