U.S. and World News
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.- The U.K. parliament rejected Prime Minister Theresa May’s withdrawal accord on Tuesday as expected. It is now clear that the U.K. will likely not leave the European Union by March 29th and Prime Minister Theresa May will be asking for an extension after a no-deal Brexit has also been rejected. The European Union must unanimously approve an extension, which would be in their best interests. Theresa May plans to bring her Brexit deal, which was already rejected twice, to parliament for one more vote before meeting with the European Union on March 21st.
- Self-declared interim president Juan Guaido of Venezuela has announced a “state of national emergency” as a result of ongoing power outages throughout the country. At least 15 people have died and the private sector continues to lose hundreds of millions of dollars as a result of the blackouts. Current President Nicolas Maduro is blaming the United States for the power outages. State owned PDVSA and its joint venture partners are struggling to produce oil and the government is now said to be rationing electricity in an effort to supply power to the Jose oil export terminal, a major source of revenue for Venezuela.
Markets
- Stocks picked up steam again having a very strong week. The S&P 500 jumped 2.95% and closed at 2,822. The Dow Jones rose higher, but was held lower by Boeing, gaining 1.64% and closing at 25,849. Year to date, the S&P is up 13.09% and the Dow Jones is up 11.45%.
- Yields continued to fall this week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.40% and 2.59%, respectively.
- The spot price of WTI Crude Oil rose much higher this week. Prices rose 4.14% and closed at $58.39 per barrel. Year to date, Oil prices are up 28.58%.
- The spot price of Gold rose 0.32% this week and closed at $1,302.40 per ounce. Year to date, Gold prices are up 1.55%.
Economic Data
- Initial jobless claims rose by 6,000 to 229,000 for the week. The four-week moving average of claims fell by 2,000 to 224,000. Claims rose by 5,000 in Illinois and by 2,000 in Ohio and Washington.
- Import prices rose by 0.6% in February versus expectations for a 0.3% increase.
- Retail sales rose by 0.2% in January versus expectations for a flat reading. The rise reflected a rise in ex-auto and gas sales.
- Core retail sales rose by 1.1% versus expectations for a 0.6% increase.
- The consumer price index (CPI) rose by 0.17%, in-line with expectations. The year-over-year measure rose to 1.50% versus expectations for 1.60%.
- Core CPI rose by 0.11% versus expectations for a 0.2% increase. The year-over-year measure rose to 2.08% versus expectations for a 2.2% increase.
- The producer price index (PPI) rose by 0.1% versus expectations for a 0.2% increase.
- PPI ex-food, energy, and trade services rose by 0.1% versus expectations for a 0.2% increase.
- Durable goods orders rose by 0.4% versus expectations for a decline of 0.4%.
- Construction spending rose by 1.3% versus expectations for a 0.5% increase.
- Sales of new single-family homes fell by 6.9% to a seasonally-adjusted annualized rate of 607k versus an estimate of 622k units.
- Industrial production rose by 0.1% versus expectations for a 0.4% increase.
- Manufacturing production fell by 0.4% versus expectations for a 0.1% increase.
- The University of Michigan’s index of consumer sentiment rose 4 points to 97.8 in the March preliminary report versus expectations for a reading of 95.6.
Fact of the Week
- The average single-family home in the USA increased in value +5.7% during 2018. Home values in Idaho increased +11.9% (top state) while home values in North Dakota were flat (bottom state) (source: FHFA).
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
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava – (630) 281-4522 mcava@oldsecond.com
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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.
The White house has reached a tentative budget agreement that includes a $1.38 billion border security deal that would prevent another government shutdown. The compromise detailed funds for 55 new miles of barriers along the border in Texas and passed the House 300 to 128 and the Senate 83 to 16. After signing the deal, President Trump hosted a televised announcement in the Rose Garden where he stated that he would sign a declaration of a national emergency at the border. This would give the government access to billions of dollars to fund the construction of the full border wall.
Western nations continue to push for the resignation of socialist leader Nicolas Maduro of Venezuela as hundreds of thousands of protestors blanketed the streets of Caracas last weekend. The protestors are in support of self-proclaimed President Juan Guaido. The United States has announced that military intervention in Venezuela is an option and have placed extreme sanctions on the country and the state owned oil firm PDVSA, whose 2026 maturity debt is now trading at 23.75 cents on the dollar. The new sanctions have crippled the liquidity on Venezuelan sovereign debt and has caused JPMorgan to consider removing the securities from its popular emerging-market bond indexes. This action would force the largest holders of Venezuelan sovereign debt to sell in a market where it is unclear if there is any buying interest for the securities.
President Trump is optimistic that the world’s two largest economies could reach “the biggest deal ever made” and confirmed that a U.S. delegation will visit China in mid-February for a new round of trade talks. The feeling is mutual. China’s trade delegation said the latest negotiations with the U.S. in Washington made “important progress” and focused on three key themes – “trade, structural issues and enforcement.”
President Trump reached a deal with congress today to open and fund the government until February 15th. The hundreds of thousands of furloughed federal workers during the 34 day partial government shutdown are expected to receive back pay. The bill that was agreed upon does not include $5.7 billion for a border wall. President Trump stated that if there is no agreement on border wall funding by February 15th, either the government will shut down again, or he will take executive action to provide funds. This announcement today comes after two bills failed to pass the senate yesterday, and the unscheduled absences of Transportations Security Agents caused a brief ground stop a LaGuardia airport in New York this morning.
China’s chief trade negotiator, Vice Premier Liu He, will come to Washington D.C. for the next round of trade talks on January 30-31. The visit comes after some surprisingly negative economic data coming out of China this week that showed sharp contractions in both imports and exports. The poor numbers have led to stimulus measures such as tax cuts by the People’s Bank of China and figure to make it even more pressing for some sort of deal to be struck. The U.S. side isn’t necessarily presenting a unified front however, with Treasury Secretary Steve Mnuchin saying that Washington could ease tariffs on China, while U.S. Trade Representative Robert Lighthizer pushed back on this suggestion and continues to take a hardline stance.
With no end in sight, the partial government shutdown now ties the record for longest in American history, on its 21st day. Effects of a lengthened government shutdown are forgone pay from millions of federal employees, delayed business permits and visas, delayed IPO’S, and mergers and acquisitions. Withheld pay from federal employees could potentially impact consumer spending, a significant portion of the United States economy. Fitch’s global head of sovereign ratings stated that the United States triple-A credit rating could be in question because of the inability to pass a budget. The two government parties remain at an impasse over President Trump’s request for border wall funding.