U.S. and World News
United States and Chinese trade officials are set to have two more face-to-face meetings in the next few weeks that could lead to a trade deal being signed in late May. On April 4th, President Trump stated that it might be four weeks before a deal is made and then two more weeks to finalize it. The “trade truce” that was put in place at the beginning of the year, when the United States canceled a planned increase in the tariff rate on $200 billion of Chinese goods from 10% to 25%, negotiations have made significant headway. One issue that the United States has struggled with is the demand for China to implement major change to the level of power that the state has in the economy, and China’s denial of any wrongdoing. Protection of intellectual property is another issue that the United States continues to battle for, as currently any foreign company to China must provide their technology. Meanwhile, the European Union has agreed to start trade talks with the United States on industrial goods, however, France will remain on the sidelines after a French official stated that “France is opposed to the initiation of any trade negotiations with countries outside the Paris climate agreement.” At the heart of the issue of trade between the United States and Europe are subsidies for Airbus and Boeing by their respective governments and the fact that Airbus has received $18 billion in subsidies that the World Trade Organization had deemed illegal.
Markets
- Markets rose higher again this week. The S&P 500 rose 0.60% and closed at 2,905. The Dow Jones rose 1.63% and closed at 26,560. Year to date, the S&P is up 16.55% and the Dow Jones is up 14.61%.
- Yields did not change from last week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.37% and 2.56%, respectively.
- The spot price of WTI Crude Oil rose this week. Prices rose 0.17% and closed at $64.00 per barrel. Year to date, Oil prices are up 40.94%.
- The spot price of Gold fell 1.13% this week and closed at $1,275.82 per ounce. Year to date, Gold prices are down 0.65%.
Economic Data
- Initial jobless claims fell by 5,000 to 192,000 for the week. The four-week moving average of claims fell by 6,000 to 201,000. Claims fell by 4,000 in New York, 3,000 in California, and by 2,000 in Tennessee.
- Retail sales rose by 1.6% versus expectations for a 1.0% increase
- Retail sales ex-auto & gas rose by 0.9% versus expectations for a 0.4% increase
- Industrial production fell by 0.1% versus expectations for a 0.2% increase
- The trade deficit fell to -$49.4 billion versus expectations for a level of -$53.4 billion
- Wholesale inventories rose by 0.2% versus expectations for a 0.3% increase
- Business inventories rose by 0.3%, in-line with expectations
- Housing starts fell by 0.3% versus expectations for a 5.4% increase
- Building permits fell by 1.7% versus expectations for a 0.7% increase
Fact of the Week
- The average cost of 1-year of college at an average 4-year public institution(including tuition, fees, room and board) has tripled over the last 22 years, rising from $7,142 for academic year 1996-97 to $21,370 during academic year 2018-19 (source: College Board).
Please contact a member of the Wealth Management Department if you have any questions about this information.
Rich Gartelmann, CFP® – (630) 844-5730 – rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Brad Johnson, CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Mike Cava, CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Jacqueline Runnberg, CFP® – (630) 966-2462 jrunnberg@oldsecond.com
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The European Union granted Theresa May an extension for the deadline to leave until October 31st during an emergency summit in Brussels on Wednesday. Some say, that her days are numbered as Prime Minister of the U.K as attempts to leave the European Union with a deal has been a circus. JPMorgan economist Malcolm Barr stated that “A six-month period is clearly enough for the Conservative party to contemplate a change in leadership while still allowing some time for the incoming PM to seek to negotiate with the EU”. The remaining possible scenarios are “No Brexit”, Theresa May’s deal is approved and she resigns from office, the deal fails again and an election is called, or perhaps the worst scenario, there is a “No-deal Brexit”. Goldman Sachs currently has a 10 percent probability of a no-deal Brexit.
President Trump met with Chinese Vice Premier Liu He at the White House yesterday as the two sides are reportedly coming close to reaching a deal. Reports have also indicated that the United States will keep tariffs on China until a deal is reached. Chinese Vice Premier Liu He said that the two sides have reached a new consensus on a trade agreement, meanwhile, President Trump stated that no meeting with Chinese President Xi Jinping will take place until a deal is reached and that he could see a deal being made within four weeks.
Two years ago today, the United Kingdom asked the European Union for a divorce and today is the day that Brexit was finally supposed to transpire, however, many questions remain about how the whole thing will shake out. The new deadline is now two weeks away and lawmakers are left scrambling to pass a deal to avoid the “no-deal” Brexit, an outcome that no one wants. Theresa May also announced this week that she would resign if the deal was approved in a last ditch effort to save her deal, but was answered by Northern Ireland’s Democratic Unionist Party promising to continue to reject her deal. The withdrawal agreement that was voted on today was rejected, as expected, meaning the hard deadline for Brexit is April 12th. Following the vote today, European Council President Donald Tusk announced a summit for April 10th, raising more questions about the possibility of another extension.
After the French national debates over government policy ended last weekend, 10,000 “Yellow Vest” protestors took to the streets for the 18th weekend, bringing violence and anger. Nearly 100 businesses on the Champs-Elysees were vandalized or torched. Finance Minister Bruno Le Maire stated in late February that the protests have shaved 0.2% off of economic growth. Starting this Saturday, “Yellow Vest” protestors will be banned in the hardest hit neighborhoods and France is forcing its banks to raise capital buffers to protect against any economic downturns.
On Sunday, an Ethiopian Airlines flight transporting 157 people on a Boeing 737 MAX 8 crashed during takeoff, killing all passengers on board. The incident occurred less than five months after another Boeing 737 MAX 8 crashed in Indonesia killing 189 people and investigators have drawn similarities between the two crashes, especially since both took place during the take-off phase. Immediately following the crash, several countries grounded the aircraft and placed a ban on the 737 MAX 8 from flying into and out of the country. On Wednesday, Boeing announced that they would temporarily suspend the entire fleet “out of an abundance of caution and in order to reassure the flying public of the aircraft’s safety”. Boeing is expected to perform a software update on the entire fleet in mid-April.
British Prime Minister Theresa May traveled to Brussels again this week in a last-ditch effort to gain support from European Union leaders so that Britain can leave independent of European Union rules. Earlier this week Theresa May announced a plan that would provide $1.6 billion in funding to boost economic growth in the more indigent areas of the U.K., some say this is an attempt to buy votes and to pick up any leftover potential supporters that may remain. Theresa May has a chance of getting her Brexit deal passed if the Irish border impasse is resolved, however, this remains a significant impasse. It is predicted that there will be an extension and that Theresa May will have a deal passed by next month. The Prime Minister spoke today, stating that there is a chance that Britain may not leave the European Union at all.
Earlier this week, President Trump extended the March 1st trade truce deadline between the United States and China, citing “substantial trade progress”. If the deadline had not been extended, the tariff rate on $200 billion in Chinese products would have been increased to 25% from 15%. Chinese equities soared over 5% on the news into bull market territory. U.S. Trade Representative Robert Lighthizer stated that it’s too early to draw conclusions on a trade deal between the two countries and that even if a deal was made, the United States would need to maintain the threat of tariffs.
With one week left until the March 1st deadline for the temporary trade truce between the United States and China, negotiators have drawn up memorandums of understanding on forced technology transfer, cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade. This is the most progress that has been made on trade since the 7-month trade negotiations have begun. President Trump stated earlier this week that he would consider pushing back the March 1st deadline and that it is not a “magical date”. Today, President Trump is scheduled to meet with Chinese Vice Premier Liu He at the Oval Office where they will attempt to come to a deal. Some sources have said today that President Trump and Chinese President Xi Jinping could have a summit in Mar-a-Lago in late March, raising expectations for an extended deadline.
Rich Gartelmann, CFP®
