Wall Street sold off to end the week and month, as investors grew increasingly fearful about the potential global economic impact of China’s spreading coronavirus. Worries were exacerbated by increasing reports of worldwide cases, with 9800 confirmed cases and 200 people dead. Delta, United and American Airlines are suspending U.S.-China flights, and the U.S. Centers for Disease Control and Prevention saying it would quarantine Americans evacuated from Wuhan, the epicenter of the outbreak.
After more than three years of economic uncertainty, political division and missed deadlines, the U.K. is set to leave the EU at the stroke of midnight Brussels time. A potentially volatile new chapter lies ahead: London and Brussels will try to hash out a trade deal by the end of the year as Britain enters a transition phase. On the eve of Brexit, the Bank of England opted to leave interest rates on hold at 0.75%, citing a pickup in business activity since the election of Boris Johnson and defying some market speculation that a cut was in the cards.
Five Katyusha rockets were fired at the fortified Green Zone in Baghdad last night, one directly hitting the U.S. Embassy building. The rare direct targeting of the compound wounded three people, adding to the bearish market turn being seen around the world. News reports also suggested that Iraqi security forces in Baghdad killed an anti-government protester, adding to the months-long civil unrest that has seen the death of 500 people since Oct. 1.
Markets pulled back again this week over concerns about the coronavirus. The S&P 500 lost 2.1% and closed at 3,225. The Dow Jones fell 2.5% and closed at 28,256. Year-to-date, the S&P is about flat, down 0.04% and the Dow Jones is down 0.9%.
Yields fell noticeably this week. The 5 year and 10 year U.S. Treasury Notes are yielding 1.31% and 1.42%, respectively.
The spot price of WTI Crude fell this week. Prices fell 4.8% and closed at $51.59 per barrel. Year to date, Oil prices are down 15.5%.
The spot price of Gold rose by 1.1% and closed at $1,589.16 per ounce. Year to date, Gold prices are up 4.7%.
Real GDP rose by 2.1% in the fourth quarter, one tenth above expectations.
Initial jobless claims declined to 216k, roughly as expected, and continuing claims fell by 44k further to 1,703k.
New home sales decreased by 0.4% to 696k in December, and the levels of home sales in prior months were revised down.
Pending home sales fell 4.9% in December, mirroring the pullback in new homes sales and perhaps influenced by storms in the South region.
Fact of the Week
Only 1 out of every 222 individual tax returns (0.45%) was subject to an audit during the US government’s fiscal year that ended 9/30/19. (source: Internal Revenue Service)
It is shaping up to be one of the most dreadfully memorable Lunar New Year holidays in China, a holiday that is similar in significance to Christmas in the United States. There was a massive outbreak of a deadly disease called coronavirus during the busiest travel season of the year, prompting China to quarantine 16 cities or roughly 46 million people and canceling Lunar New Year events. So far, roughly 900 people have been affected and 26 people have died with the disease having spread to other areas in the Asia Pacific Region and two confirmed cases in the United States. The coronavirus is reminiscent of the SARS virus that affected China in 2003 and shaved 0.8% off of GDP growth. China has sent military aid to the city of Wuhan, where the virus originated, as the city’s hospitals have run out of supplies. Goldman Sachs predicted that the virus would cause a demand shock in oil prices as a result of the travel restrictions and quarantines. The World Health Organization announced on Thursday that is was “still too early” to call the virus an international public health emergency.
Boeing is reportedly close to agreeing to a two-year credit line with Citigroup that could be as high as $10 billion. The line of credit is believed to be the company’s estimate for costs and compensation related to the 737 MAX’s crashes and grounding. Boeing announced this week that they do not expect approval for the 737 MAX to fly again until mid-2020, however, the FAA announced today that approval could come before mid-year. The new CEO of the company announced that they would not be cutting the dividend as a result of the grounding and that production for the aircraft will begin again months before it returns to service.
Markets pulled back this week over concerns about the corona virus. The S&P 500 lost 1.01% and closed at 3,295. The Dow Jones fell 1.20% and closed at 28,990. Year-to-date, the S&P is up 2.10% and the Dow Jones is up 1.68%.
Yields fell this week. The 5 year and 10 year U.S. Treasury Notes are yielding 1.51% and 1.68%, respectively.
The spot price of WTI Crude fell this week. Prices fell 7.15% and closed at $54.37 per barrel. Year to date, Oil prices are down 10.96%.
The spot price of Gold rose by 0.86% and closed at $1,570.69 per ounce. Year to date, Gold prices are up 3.52%.
Initial jobless claims rose by 6,000 to 211,000 and the four-week moving average fell by 4,000 to 213,000. Claims fell by 4,000 in New York.
Existing home sales rose by 3.6% to a seasonally-adjusted-annualized rate of 5.54 million units versus expectations for a 1.5% increase
Fact of the Week
40% of Americans can’t afford a $1,000 emergency (source: Bankrate).
On Monday evening, Iran carried out its retaliatory response to last week’s assassination of their military leader in the form of a missile attack on a military base in Iraq housing U.S. troops. The White House said that Iran launched 16 ballistic missiles at the facility and that no U.S. troops were killed in the attack. President Trump stated that Iran appears to be standing down and that the United States “will immediately impose additional punishing economic sanctions on the Iranian regime” in response to Iranian aggression. This morning, Secretary of State Mike Pompeo and Secretary of Treasury Steve Mnuchin announced new sanctions on Iran that include penalties on some senior leaders. The new sanctions will target Iran’s steel, construction, manufacturing, textiles, and mining industries and will aim to prevent other nations from trading with the country. Foreign Minister Mohammad Javad Zarif stated that the strikes concluded Iran’s response to the killing of Soleimani.
Australia is urging approximately 250,000 people to evacuate as a result of the bushfires that have already burned 25.5 million acres and killed 27 people. The bushfires in Australia have burnt more land than this years’ fires in Brazil, California, and Indonesia combined. Westpac estimated that the total losses related to the bushfires would total about $3.44 billion and would result in a 0.2%-0.5% negative impact on GDP. During the past 10 days, about 2,000 homes have been destroyed in New South Wales and firefighters from the United States and Canada have traveled to Australia to help battle the fires.
Markets extended the rally this week. The S&P 500 gained 0.98% and closed at 3,265. The Dow Jones rose 0.67% and closed at 28,824. Year-to-date, the S&P 500 is up 1.13% and the Dow Jones is up 1.05%.
Yields rose slightly this week. The 5 year and 10 year U.S. Treasury Notes are yielding 1.63% and 1.82%, respectively.
The spot price of WTI Crude plummeted this week on easing fears of Iran conflict. Prices dropped 6.17% and closed at $59.16 per barrel. Year-to-date, oil prices are down 3.11%.
The spot price of Gold rose by 0.56% and closed at $1,560.86 per ounce. Year-to-date, the price of gold is up 2.87%.
Initial jobless claims fell by 9,000 to 214,000 and the four-week moving average fell by 10,000 to 224,000. Claims fell by 3,000 in Illinois and by 2,000 in Tennessee, Pennsylvania, Ohio, New Jersey, and Michigan.
The ISM non-manufacturing index rose 1.1 points to 55.0 versus expectations for a reading of 54.5
Factory orders fell 0.7% versus expectations for a decline of 0.8%
Private sector employment in the ADP rose by 202,000 versus expectations for an increase of 160,000
Nonfarm payrolls rose 145,000 in December versus expectations for an increase of 160,000
The unemployment rate remained at 3.5%, in-line with expectations
Average hourly earnings rose by 0.1% versus expectations for an increase of 0.3% and the year-over-year rate came in at 2.9%
Fact of the Week
Between 7/01/18 and 7/01/19, the Census Bureau estimated that the US population grew from 326.688 million to 328.240 million, an increase of just +0.48%, i.e., less than 1/2 of 1% growth rate between 2018-2019. That’s the lowest year-over-year growth rate in the United States since 1918 or 101 years earlier (source: Census Bureau)
The leader of Iran’s elite Quds military force, Qassem Soleimani was killed Thursday night near Baghdad International Airport in an airstrike ordered by President Trump. Soleimani was one of the most powerful Islamic Republic figures and has been blamed for the deaths of hundreds of Americans, including the attack on December 27th that killed an American defense contractor. The Pentagon stated that Soleimani was actively developing plans to attack American diplomats and service members in Iraq and throughout the region. Iran’s foreign minister Javad Zarif stated that the attack was “extremely dangerous and a foolish escalation” and Iran’s Defense Minister Amir Hatami has vowed to take “crushing revenge” for Soleimani’s assassination. The attack has consequently angered Iraq as well, a United States ally, as they were not warned of the attack against Iran on their soil. The Quds Force was labeled a foreign terrorist organization in April of 2019 when Secretary of State Mike Pompeo announced that “With this designation, we are sending a clear signal, a clear message to Iran’s leaders, including Qassem Soleimani and his band of thugs, that the United States is bringing all pressure to bear to stop the regime’s outlaw behavior.” Before the airstrike, Iranian protestors attacked the U.S. Embassy in Baghdad to protest a retaliatory U.S. attack on Sunday that killed two-dozen members of an Iranian backed group.
Markets finished the first week of the new decade on a higher note. The S&P 500 gained 0.45% and closed at 3,235. The Dow Jones rose 0.65% and closed at 28,635. The S&P rose 31.21% and the Dow Jones rose 25.09% in 2019.
Yields fell this week. The 5 year and 10 year U.S. Treasury Notes are yielding 1.59% and 1.79%, respectively.
The spot price of WTI Crude jumped this week amid renewed tensions in the Middle East. Prices rose 2.11% and closed at $63.02 per barrel. Oil prices rose 38.78% in 2019.
The spot price of Gold rose by 2.65% and closed at $1,550.64 per ounce. The price of gold rose 20.91% in 2019.
Initial jobless claims fell by 2,000 to 222,000 and the four-week moving average rose by 4,000 to 233,000. Claims rose by 2,000 in New York and fell by 6,000 in California
Pending home sales rose 1.2% versus expectations for an increase of 1.4%
The Conference Board index of consumer confidence fell 0.3 points to 126.5 versus expectations for a reading of 128.5
Fact of the Week
The SECURE Act was signed into law on December 20th 2019 and as a result:
There is now a 10-year distribution cap for non-spousal beneficiaries
The required age to begin required-minimum-distributions was raised to 72 from 70 1/2
Contributions to IRA’s will be allowed to continue after the age of 70 1/2