Seconds

Seconds.  Stocks sold off yesterday as US manufacturing disappointed and the President set his sights on South America.  Strong Chinese economic data was not enough to keep markets from dropping in response to further deterioration in US manufacturing.

 

N O T E W O R T H Y

 

• Trade tangle.  In a surprise move, President Trump announced yesterday that he would be levying tariffs on steel and aluminum imports for Brazil and Argentina.  His justification, via Twitter, stated that the two countries have been manipulating their currencies which has hurt US farmers.  His assertion is based on Brazil’s and Argentina’s farm products being cheaper due to their weaker currencies.  Hmm, interesting.  US farmers have been hurt, but not because of the stronger dollar.  The trade war has caused China to seek agricultural products from other suppliers and Brazil along with Argentina have benefited from the supplier shifts.  The strengthening US dollar has more to do with currency flows into a relatively stronger economy with less political risk.  The two countries were exempted from the existing metal tariffs but the President removed the exemption effective immediately.
• The battle has just begun.  Now on to the other front in trade where China in retaliation for the President’s signing of the Hong Kong Human Rights Act issued a number of sanctions on the US, including restricting naval vessels and aircraft in the region.  They also sanctioned some NGO’s.  They are largely symbolic moves but they do reflect a growing tension between the sides.  I reported yesterday morning that China reiterated its stance that tariff rollbacks were a requirement for a Phase One deal, a concession which the US has not been willing to give heretofore.  WHILE YOU SLEPT, China announced that it would speed up the publishing of a list of “unreliable” US entities.  You might recall the origin of the list was in response to the US sanctions on Huawei.  Well, the list is back, thanks in part, to the US Support of Hong Protesters and a bill being sponsored by Senator Marco Rubio aimed at abuses of Uighur Muslims in China.  The “list” is another mostly symbolic move, but simply adds more tension to an already tense negotiation.  Speaking of battles, WHILE YOU SLEPT, the US proposed tariffs on roughly $2.4 billion in French products in response to newly minted digital taxes levied on large American tech firms like Amazon, Google, Facebook, and Apple.  Robert Lighthizer also announced that his office will be evaluating whether to open investigations into similar digital taxes by Austria, Turkey, and Italy.  Just a reminder, tariffs on Chinese consumer electronics are due to kick in on December 15th.
• Weak in the knees.  Manufacturing has not had a good year.  Trade uncertainty and the global economic slowdown has caused damage to US manufacturing and things don’t seem to be getting better.  Yesterday, the ISM Manufacturing PMI came in well below expectations at 48.1, down further from last month’s 48.3.  This represents the fourth month in a row in which the PMI was below 50, indicating a contraction in activity.  Though manufacturing only represents roughly 12% of US GDP, its decline continues to be a drag on the overall economy.
• Add to cart.  Consumers are shopping and not stopping, minting a record Cyber Monday.  Yesterday, I reported that online sales on Black Friday had hit $7.4 billion.  Cyber Monday, now in the books, saw online sales top $9.2 billion, a +17% increase over last year’s sales.  Consumer spending = good for the US economy.  Twenty two more shopping days to go in the holiday season.

 

THE MARKETS

 

Stocks sold off yesterday on weaker than expected manufacturing data and trade jitters from a new wave of tariffs on Steel and Aluminum.  The S&P500 dropped by -0.86%, the Dow Jones Industrial average fell by -0.96%, the Russell 2000 sold off by -1.04%, and the NASDAQ Composite Index slipped by -1.12%.  Bonds also sold off in response to strong data out of China and the EU and 10-year treasury yields climbed by +4 basis points to 1.81%.  Crude oil came back by +1.43% on hopes that OPEC will agree to cut supplies further at their meeting this week.

 

NXT UP

 

– Ward’s Total Vehicle Sales is expected to be 16.89 million units compared to last month’s 16.55 million.

– Marvell Technology and Salesforce.com will release earnings after the bell.

– Please refer to the attached weekly economics and earnings calendars for details.

 

daily chartbook 2019-12-03

econ numbers 12_02

earnings releases 12_02