Here is a look at what is moving markets as kickoff trading in the final week of November.
What Is Moving Markets
November 25 (King World News) – Peter Boockvar: So the news over the weekend that China was taking even greater steps to protect IP via raising penalties against those guilty of violations was great to see. I still though think it’s important from a market perspective to compare what this phase one deal will end up looking like (I think we’ll get one) vs the one that was almost inked in May. The one in May was certainly the most comprehensive in all respects and the most stringent in terms of IP protection where the Chinese were actually going to embed it in law. Phase one will likely be a fraction of it, some saying about 60-65% in terms of content with the balance hoped for to be included in phase two which who knows if we’ll get next year…
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The S&P 500 closed at 2945 that May weekend before i’s were to be dotted and t’s crossed. But then the talks broke off as we know. Since, we’ve seen a tariff hike to 25% from 10% on the $250b worth of initial goods, the $110b September tariffs and the threat of December ones on $165b. The September and December ones should go away on a phase one deal but we’ll be left with the rest at 25% most likely. Back then earnings expectations for 2019 was for up on the year vs a slight decline now and 2020 estimates are lower today then back in May. Then, the ISM manufacturing index was above 50 vs now where we’ve seen three months in a row below. The services ISM was printing around 56 vs 52.6 in September and 54.7 in October. Copper was about $2.80 then vs $2.67 now. Q1 GDP growth was 3.1% vs a consensus of about 1-1.5% now for Q4. Soybean prices though are higher at $9 per bushel today vs $8.40 in early May.
What’s really helped stocks then has been multiple expansion and the Fed’s rate cuts and QE (or not QE). The three cuts so far has helped to lower the 2 yr yield from 2.35% to today’s level of 1.64%. The 10 yr yield was 2.54% in early May vs 1.79% today. The 3 month/10 yr yield spread was -10 bps vs -21 bps today. The Fed’s balance sheet was $3.9 Trillion vs $4.03 Trillion as of last week (up $250b in a few months). But that’s what Fed easing is meant to do, ease financial conditions and raise multiples.
Meanwhile, In Europe…
The German November IFO index, which printed 99.5 in April and 98.3 in May, was 95 as expected, up from 94.7 in October. Both the Current Assessment and Expectations components were up a touch m/o/m. The ISM said simply, “The mood among German managers has improved slightly.” There was some more elaboration from the President of the IFO Institute in an interview where he said “We do have some stabilization, we do have growth. But the trouble is the difficulties are mostly coming from outside, from exports, which are weak. So what the government can do here with traditional fiscal stimulus policy is limited.” That last point is important because everyone is looking to Germany to increase public spending to goose economic growth. As the number was as expected the euro is little changed as are bund yields while the DAX is rallying on China trade deal hopes, again.
The UK
The UK CBI retail sales index for November improved to -3 from -10 and that was better than the estimate of -11. It’s also the least negative since April. The CBI said “Retailers are entering the festive season with a bit of hope that sales will head up, with the strongest expectations in half a year. Actual sales have also stabilized and have nudged above average for the time of year. And employment has stopped falling after three years of decline. But Brexit uncertainty continues to weigh on investment plans for the year ahead which remain weak.” I remain very hopeful that a Brexit resolution is close by after BoJo wins handily next month. The pound is up as is the FTSE 100 and 250 while gilt yields are little changed.
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