US equity markets posted another solid weekly performance as economic data and indications of a US/China trade deal took shape. Interestingly, as confirmation of a stage one trade deal took shape Friday, stock prices cooled heading into the weekend. We closed out the week with marginal gains on Friday. It felt like a classic case of buy on the rumor, sell on the news – though I do not think that a trade deal will lead to a pullback in equity prices. We closed out the week still in a “Confirmed Uptrend.”

Friday’s price action was underwhelming. The Nasdaq Composite gained 0.20% while both the S&P 500 and NYSE Composite closed virtually flat. Turnover (volume) was also less than exhilarating. NYSE volume slipped 3.6% from Thursday’s trade and Nasdaq volume dropped 7.97%.

Highlights from last week’s economic calendar were largely focused on, but not limited to, the FOMC meeting. CPI data for November was released Wednesday – M/M 0.3%, Y/Y 2.1%. Less food and energy, the Y/Y change was 2.3%. The EIA Petroleum Status Report reflected modest builds across all three verticals with gasoline inventories being the most prominent (+5.4 M bbl.)

The FOMC meeting and announcement provided investors with precisely what they were expecting. As a result, there was little volatility-fueled price action. Rates were left unchanged and guidance appears to be calling for more of the same – at least for Q1 of 2020. It is also likely that seeing how next year is an election year and given that, historically, the Fed tends not to move on rates in an election year, rates will be left unchanged in 2020. Markets appear comfortable with that.

Clearly, the focus has shifted in recent weeks from the Fed and rates to US/China trade and the USMCA. And in that case, markets have had little to be overwhelmingly concerned about. Stage one of a US/China deal was announced last week with both sides claiming victory. The street cares about what it can quantify – meaning moving variables to constants. Any resolution around a trade deal does that and, as a result, I expect tailwinds in the form of trade news moving well into Q1 of 2020.

In somewhat of a counter-trend trade, weekly jobless claims – released Thursday morning – reflected a significant jump. Econoday consensus has been calling for a weekly jobless claims number to be 213 K. It was 252 K. That’s a big miss and the largest jump in weekly claims in two years. Worth keeping an eye on.

Producer Prices Index – Final Demand (PPI-FD) for November was flat on a M/M basis. Y/Y it came in at 1.1%. Clearly, the US/China trade “war” has not ignited any inflation in the PPI data – as was expected by many.

Finally, retail sales data for November was released Friday morning. Econoday consensus was calling for a healthy uptick to 0.5% from the previous month’s initial reading of 0.3%. It was 0.2%. Less autos M/M, it was 0.1%. The results were a bit underwhelming and certainly not expected given the strength of the American consumer, employment, confidence, sentiment, rising wages, etc. Not unlike Econoday, I was expecting a stronger number – significantly so.
This week’s calendar is unlikely to fuel any trading drama. November Housing Starts are due Tuesday morning. Econoday consensus is 1.340 M for starts and 1.461 M for permits. Industrial production for November is due Tuesday as well. Econoday consensus is calling for major tick higher, 0.9% on a M/M basis. Q3 GDP (f) is out Friday morning. Econoday Q/Q consensus is 2.1%.

Look for markets to digest recent weekly gains and for earnings and economic data to continue to provide a constructive underpinning for investors as we continue our march to year-end.

A theme that has had an interesting impact on global risk appetite – particularly as it relates to Europe – has been the UK elections, which were held last week. Boris Johnson and the Tories defeated the Labor Party and Jeremy Corbyn. Many critics of Johnson and of Brexit have been predicting a wholesale washout of the British Pound, as well as a general collapse of British standing on the world stage if the Tories won a Parliamentary majority. So far, it appears as though global investors and markets are standing pat.

Flickr photo: by Matt From London
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