U.S. and World News
- Increased optimism of a Phase One trade deal between the U.S. and China helped to bring major averages higher in the holiday-shortened week, including a 100th new record high for the Dow Jones under the Trump Presidency. Aiding this optimism was China announcing increased penalties on violations of intellectual property rights. Data out of China showing industrial profits declining -9.9% in the last year may also lend to China’s desire to speed up this Phase One process. However, the human rights situation in Hong Kong could potentially jeopardize this progress. President Trump has signed into law Congressional legislation supporting Hong Kong’s anti-government protestors, prompting Beijing to say it would take ‘firm counter-measures’ and that attempts to interfere would be doomed to fail.
Sporting a comfortable lead in the poll ahead of the opposition Labour Party, Boris Johnson laid out his Tory agenda ahead of the December 12th In it he pledges to bring back his Brexit Deal to parliament before Christmas and ruled out any further delays. Johnson has also promised no new taxes, contrary to his opponent Jeremy Corbyn who has proposed additional taxes to fund a major expansion of the U.K.
Markets
- Markets rose this week on continued optimism over trade. The S&P 500 gained 04% and closed at 3,141. The Dow Jones rose 0.75% and closed at 28,051. Year-to-date, the S&P is up 27.63% and the Dow Jones is up 23.05%.
- Yields were little changed this week. The 5 year and 10 year U.S. Treasury Notes are yielding 63% and 1.78%, respectively.
- The spot price of WTI Crude dipped this week. Prices fell 07% and closed at $55.42 per barrel. Year to date, Oil prices are up 22.04%.
- The spot price of Gold rose by 55% and closed at $1,463.93 per ounce. Year to date, Gold prices are up 14.15%.
Economic Data
- Initial jobless claims declined by 15,000 to 213,000 and the four-week moving average fell by 1,000 to 220,000. Claims decreased by 4,000 in Illinois and 3,000 in California but rose by 4,000 in Texas and 2,000 in New York.
- Third Quarter real GDP was revised up by 0.2% to 2.1% in the BEA’s second estimate. This was above expectations but the details were softer as rising inventories contributed most of the upward revision.
- New home sales declined by -0.7% in October, slightly better than expectations. New sales decreased in the South (-15,000) and Northeast (-6,000), but rose in the West (+13,000) and Midwest (+3,000).
- The Case-Shiller home price index rose 0.4% for September, beating expectations of 0.3%. Prices rose in 17 of 20 cities with Seattle (+0.8%), Los Angeles (+0.7%) and Phoenix (+0.6%) posting the largest increases. Home prices have risen 2.1% over the last 12 months as measured by Case-Shiller.
Fact of the Week
- The combined size of the world’s economies as measured by gross domestic product totals $106 trillion. The combined debt of the world’s economies is $255 trillion, or 240% of the worlds’s GDP. Debt includes government debt, household debt and borrowing by non-financial companies. (Source: Institute of International Finance)
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On Monday, a 22-year-old Hong Kong student died after falling from a ledge of a car park during a police mission to clear an area during protests, sparking a new round of outrage against Beijing police. Reports say that the 22-year-old was trying to escape tear gas, however the exact reason for his fall are unclear. Additionally, a pro-Beijing lawmaker was stabbed in the street this week by someone impersonating a supporter. As of right now, police say that they were using tear gas to clear an area of protesters and deny any wrongdoing, but the death is creating outrage and a call for investigation by students at the city’s University of Science and Technology. Protests have become increasingly violent as Hong Kong continues to fight for Democracy with Chinese police, even after the controversial extradition bill was withdrawn in September.
British Prime Minister Boris Johnson is set for a big day tomorrow as parliament is set to vote on a Brexit deal that the Prime Minister agreed on with the European Union on Thursday. Boris Johnson stated that he is “very confident” that the House of Commons will support the deal, which is widely expected to be a historically close vote and will determine whether there will be a deal or not before the October 31st deadline. The Northern Irish Democratic Unionist Party (DUP) stated that they are unable to support the deal as it stands, casting doubts over the passage of the deal tomorrow. If the MP’s reject the deal tomorrow, it is still possible that a vote on a “no-deal Brexit” could pass, but that is unlikely given historical votes on the this motion. The likely outcome if the Brexit deal is voted down tomorrow is that the United Kingdom will ask the European Union for another extension.
Ahead of scheduled trade negotiations today with Chinese Vice Premier Liu He, the Trump administration has added 28 Chinese entities to an export blacklist as a consequence of Beijing’s repression of Muslim minorities. The Trump administration stated that this move is completely unrelated to trade negotiations and it will prevent the blacklisted companies from buying American components without government approval. China quickly responded by saying it would take countermeasures, “urging the U.S. side to immediately correct its mistake.” and announced a plan to restrict visas for U.S. nationals with ties to anti-China groups. The Chinese delegation arrived in Washington yesterday where negotiations began and President Trump announced that talks went “very well”. After the meeting at the White House, President Trump told the press that the U.S. and China have “come to a substantial phase 1 deal”. In exchange for the cancelation of the United States planned increase in tariffs on Chinese goods on October 15th, China has agreed to increase purchases of U.S. agriculture goods from $8 billion to $40-$50 billion and has agreed to be more transparent with regard to their currency.
Weekend drone strikes on the heart of the Saudi oil industry forced the kingdom to shut down half its crude production, amounting to a loss of 5.7M barrels a day, or roughly 5% of the world’s daily production of crude oil. Yemen’s Iranian-aligned Houthi rebels claimed credit for the attack, saying they sent 10 drones to strike at important Aramco facilities, including the world’s largest oil processing plant and a major oil field. The disruption sent WTI futures as much as 15.5% higher overnight to $63.34, the biggest intraday percentage gain since June 22, 1998, while President Trump authorized a release of crude from the Strategic Petroleum Reserve, as necessary. For the global oil market, the 5.7M bpd Saudi halt is the single worst sudden disruption ever, surpassing the loss following the Invasion of Kuwait and Iranian Revolution.
Early this morning, China announced its plan to impose retaliatory tariffs on $75 billion of American goods including soybeans, automobiles, and oil as a response to the Trump administrations planned additional tariffs on Chinese imports. The new retaliatory tariffs are scheduled to take effect on September 1st and December 15th, the same schedule as the United States 10% tariff on $300 billion of Chinese goods goes into effect. This new set of retaliatory tariffs targets U.S. farms and factories, bringing the total tariff on U.S. automobile exports to 50%. The announcement comes as the G7 summit takes place in France and the Federal Reserve meeting in Jackson Hole Wyoming, two critical meetings where the trade war with China will be discussed.
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British Prime Minister Theresa May’s last ditch effort to deliver Brexit through a deal filled with compromises with the Labour Party has failed as calls for her resignation only grew louder. The U.K. participated in European elections this week, putting a sour taste into the mouths of British politicians who had originally planned to watch this event from the sidelines. Results of the European Union elections will be announced after 10P.M on Sunday and British Conservatives are expected to suffer a dramatic defeat. Theresa May has announced that she will resign on June 7th and stated that “It is and will always remain a matter of deep regret to me that I have not been able to deliver Brexit”. The British Pound has fallen substantially amid all of the uncertainty and the process to elect a new leader will begin next week.
Earlier this week, China announced new tariffs on $60 billion of American imports in response to the tariff increase by the United States. The Trump administration will subsidize U.S. farmers with $15 billion in aid, in addition to the Department of Agriculture’s $12 billion compensation plan that was put into place last year. President Trump has stated his intention to meet Chinese President Xi Jinping at the G20 summit in June. The United States also has banned China’s Huawei Technologies from buying U.S. technology without special approval and has restricted its equipment from being any part of U.S. telecom networks. Equipment produced by Huawei Technologies, the world’s third largest smartphone maker, is allegedly used by the Chinese to spy, however Huawei has denied those allegations.