Month-In-Review: November 2019

Optimism surrounding a potential Phase One trade deal with China continued to dominate market movement in November with investors viewing any further news of a potential de-escalation of trade tensions as justification to push risk assets to new record levels. Discouraging comments, meanwhile, have had an equally sizable, albeit negative, impact on the market fueling equity market volatility. Going forward, with the trade deadline rapidly approaching, hopefulness could continue to buoy stocks, but exuberance in and of itself only goes so far; a realized agreement will need to be reached in order for such momentum to be sustained.

Market Activity and Commodities

·      Equities – Equities pushed higher in November after posting minimal gains in October; beginning at 3,037.56, the S&P 500 rose 3.4% in the second month of Q4, closing at 3,140.98, after posting an all-time high of 3,153.63 on the 27th. The Dow, meanwhile, gained 3.7% in November from 27,046.23 to 28,051.41 after reaching an all-time high of 28,164.00 also on the 27th. Since the start of 2017, U.S. equities rose an average 42% and have reached new highs in eleven of the past thirty sessions.

·      Treasuries – Treasury yields ended the month of November higher. The 10-yr Treasury yield rose 9bps from 1.69% to 1.78% in the second month of the fourth quarter. The 2-yr Treasury yield, meanwhile, rose 8bps in November, closing at 1.61%. Since the start of the year, however, the 2-yr fell 88bps and the 10-year dropped 91bps.

·      Oil     

o  (Nov 5) – According to the latest OPEC outlook, slower growth and outperformance in shale has dampened the global energy outlook. “The outlook for global growth, at least in the short- and medium-term, has been revised down repeatedly over the past year... as U.S. tight oil (shale), in particular, has again outperformed expectations," OPEC wrote in its annual World Oil Outlook. Within the details of the report, the 14-member group lowered its outlook numbers for global oil demand growth to 104.8M barrels per day by 2024, and 110.6M bpd by 2040. OPEC's production of crude oil and other liquids is also expected to decline to 32.8M bpd by 2024, compared with 35M bpd in 2019. Crude traded up 0.62% at $56.89 a barrel following the report.

o  (Nov 13) – According to the IEA's annual World Energy Outlook, the U.S. shale revolution will account for 85% of the increase in global oil production over the next 20 years which is projected to rise to 19M barrels a day in 2030. Following the report, crude traded down 0.65% at $56.43 a barrel.

National Growth and Outlook

·      NFIB Small Business Optimism (Nov 12) – The NFIB Small Business Optimism rose from 101.8 to a reading of 102.4 in October, more than the expected rise to a reading of 102.0, according to Bloomberg, and a two-month high.

·      Leading Index (Nov 21) – The Leading Index fell 0.1% in October, as expected, according to Bloomberg, and following a 0.2% decline the month prior, marking the third consecutive month of contraction.

·      Chicago Fed National Activity Index (Nov 25) – The Chicago Fed National Activity Index unexpectedly fell from

-0.45 to a reading of -0.71 in October, a six-month low, and the second consecutive month of a negative reading. According to Bloomberg, the index was expected to rise to a reading of -0.20 the start of Q4. The Chicago Fed National Index draws on 85 economic indicators; a reading below zero indicates below-trend growth in the national economy and a sign of easing pressures on future inflation. In October, 27 of the 85 monthly individual indicators made positive contributions, while 58 made negative contributions.

·      GDP (Nov 27) – GDP was revised higher from 1.9% to a 2.1% pace in the second-round Q3 GDP report, a two-quarter high, albeit still a noticeable reduction from a more robust pace of 3.1% at the start of the year. According to Bloomberg, GDP was expected to be unrevised at 1.9% in the second-round Q3 report. Year-over-year, however, GDP increased 2.1%, down from 2.3% the quarter prior, and the slowest pace since Q4 2016. In the details, personal consumption was unrevised at 2.9% in the second-round Q3 report, a two-quarter low. Goods consumption was revised up two-tenths of a percentage point to 5.7%, with durable goods revised up from 7.6% to 8.3%, while nondurable goods were revised down one-tenth of a percentage point to 4.3%, a two-quarter low. Services consumption was unrevised at 1.7% in the second-round Q3 report, a two-quarter low. Gross private investment, on the other hand, was revised higher from

-1.5% to -0.1%, still the second consecutive quarter of decline, with inventories revised up from $69.0B to $79.8B, a two-quarter high. Nonresidential investment, including office buildings and factories, was revised up three-tenths of a percentage point to -2.7%, still the largest quarterly decline since Q4 2015, thanks to declines in structures investment and equipment investment. Structures investment was revised up from a 15.3% decline to a lesser drop of 12.0%, while equipment investment was unrevised at -3.8%, the largest decline since Q1 2016. Intellectual property investment, furthermore, was revised down from 6.6% to 5.1% July to September, still a two-quarter high. Residential investment, meanwhile, was unrevised at 5.1% in the second-round third-quarter report, following six consecutive quarters of decline. On the trade side, exports were revised up from 0.7% to 0.9%, a two-quarter high, and imports were revised higher from 1.2% to 1.5%, resulting in a net contribution of -0.11% to headline growth. Finally, government consumption was revised down from 2.0% to 1.6% in the second-round Q3 report, the slowest pace in three quarters. Federal spending was unrevised at 3.4%, while state and local spending was revised down from 1.1% to 0.5%, a three-quarter low.

Employment

·      Jobless Claims

o  (Nov 7) – Initial jobless claims fell 8k from 219k to 211k in the week ending November 2. The four-week average, however, remained at 215k for the third consecutive week.

o  (Nov 14) – Initial jobless claims rose 14k from 211k to 225k in the week ending November 9. The four-week average increased from 215k to 217k.

o  (Nov 21) – Initial jobless claims remained at 227k for the second consecutive week in the week ending November 16. The four-week average, however, rose from 218k to 221k.

o  (Nov 27) – Initial jobless claims fell 15k from 228k to 213k in the week ending November 23. The four-week average fell from 221k to 220k.

·      Nonfarm Payrolls (Nov 1) – Nonfarm payrolls rose 128k in October, more than the 85k gain expected, according to Bloomberg, albeit a five-month low. September payrolls were revised higher from 136k to 180k and August payrolls were revised up from 168k to 219k. Thus, the overall change in nonfarm payrolls (October data + net revisions) was 223k. The three-month average, however, fell from 188k to 176k, and the six-month average declined from 170k to 156k. In the details, private payrolls increased 131k in October, following a 167k gain in September. Goods-producing payrolls, however, fell 26k due to a decline in manufacturing payrolls; manufacturing payrolls dropped 36k at the start of Q4, the largest decline since October 2009. Service producing payrolls increased by 157k in October, following a 160k rise the month prior. Education and health payrolls gained 39k, and business services payrolls rose 22k in October, despite an 8k decline in temporary help payrolls. Also, financial payrolls rose 16k, and leisure and hospitality payrolls increased 61k at the start of the fourth quarter, a nine-month high. Additionally, trade and transport payrolls gained 26k, thanks to a 6k gain in retail payrolls. On the weaker side, information payrolls declined 4k, a two-month low, and government payrolls fell 3k, with federal employment declining 17k at the start of Q4.

·      Participation Rate (Nov 1) – The civilian labor force rose by 325k in October, following a 117k gain the month prior. As a result, the participation rate edged up from 63.2% to 63.3%, the highest since August 2013.

·      Unemployment Rate (Nov 1) – Household employment rose by 241k in October, following a 391k rise the month prior. With a 325k rise in the labor force, however, the unemployment rate ticked up one-tenth of a percentage point to 3.6% in October, a two-month high, albeit still near a five-decade low.

·      Average Hourly Earnings (Nov 1) – Average hourly earnings rose 0.2% October, missing expectations for a 0.3% gain, according to Bloomberg, albeit a two-month high. Year-over-year, wages rose 3.0% for the second consecutive month, as expected, although down from the near-term peak of 3.4% reported in February.

·      Average Weekly Hours (Nov 1) – The average workweek remained at 34.4 hours in October for the third consecutive month.

·      JOLTS (Nov 5) – According to JOLTS – the Job Openings and Labor Turnover Survey – the number of job openings dropped 277k from 7.301m to 7.024m in September, more than the expected decline to 7.063m, according to Bloomberg, and an eighteen-month low.

Consumer Activity and Confidence

·      Vehicle Sales (Nov 1) – Total vehicle sales fell 3.5% from 17.19m to a 16.55m unit pace in October, a six-month low. According to Bloomberg, vehicle sales were expected to rise 0.2% to a 17.00m unit pace. Year-over-year, vehicle sales fell 5.3% at the start of Q4, the second consecutive month of decline.

·      Consumer Credit (Nov 7) – Consumer credit rose $9.513b at the end of Q3, less than the $15.000b rise expected, according to Bloomberg, and the slowest pace since June 2018. Monthly gains in consumer credit averaged $15.57b in 2018 and $15.50b in 2019 thus far.

·      University of Michigan Consumer Sentiment

o  (Nov 8) – The University of Michigan Consumer Sentiment Index unexpectedly rose from 95.5 to 95.7 in the preliminary November report, a four-month high. According to Bloomberg, the index was expected remain at a reading of 95.5 in November for the second consecutive month. In the details, consumer expectations rose from 84.2 to a reading of 85.9, while consumers’ assessment of current conditions declined from 113.2 to 110.9 in the preliminary November report, a two-month low.

o  (Nov 22) – The University of Michigan Consumer Sentiment Index unexpectedly rose from 95.7 to a reading of 96.8 in the final November print, a four-month high. According to Bloomberg, the index was expected to remain unchanged at a reading of 95.7 in the final November report. In the details, consumer expectations rose from a preliminary reading of 85.9 to 87.3, a four-month high, and consumers’ assessment of current conditions increased from 110.9 to 111.6 in the final November report, a two-month low.

·      Retail Sales (Nov 15) – Retail sales rose 0.3% in October, more than the 0.2% increase expected, according to Bloomberg, and a two-month high. Year-over-year, retail sales increased 3.1% at the start of the fourth quarter, a five-month low, and following a 4.1% gain in September. Car sales rose 0.5% in October following a 1.3% decline the month prior, and gasoline stations sales rose 1.1%, following two consecutive months of decline. Excluding autos, retail sales rose 0.2% in October and increased 2.8% over the past 12 months. Excluding autos and gasoline, retail sales increased 0.1% at the start of Q4 and rose 3.7% year-over-year. In the details, food and beverage sales rose 0.5%, general merchandise sales gained 0.4%, thanks to a 0.1% increase in department store sales, a three-month high, and non-store retailer sales increased 0.9%, a two-month high. On the weaker side, health and personal care sales were flat, clothing sales declined 1.0%, eating and drinking sales fell 0.3%, and furniture sales dropped 0.9% at the start of Q4. Additionally, electronics sales dipped 0.4% and building materials sales fell 0.5%, the second consecutive month of decline.

·      Consumer Confidence (Nov 26) – The Consumer Confidence Index unexpectedly fell from 126.1, revised higher from a preliminary reading of 125.9 , to a reading of 125.5 in November, a five-month low. According to Bloomberg, the index was expected to rise to a reading of 127.0. In the details, consumer expectations rose from 94.5 to 97.9, while present situation fell from 173.5 to 166.9 in November, a five-month low.

Inflation

·      CPI (Nov 13) – The CPI rose 0.4% in October, more than the 0.3% gain expected, according to Bloomberg, and a seven-month high. Year-over-year, headline consumer prices rose 1.8% in October, up from the 1.7% pace the month prior and a three-month high. Energy costs rose 2.7% in October, following two consecutive months of decline, while food prices rose 0.2%. Excluding food and energy, the core CPI rose 0.2% in October, as expected, according to Bloomberg, and following a 0.1% increase the month prior. Over the past 12 months, the core increased 2.3%, a three-month low. In the details, services costs rose 0.3%, recreation prices gained 0.7%, and housing prices increased 0.2%, thanks to a similar rise in the OER. Commodities prices gained 0.4% and transportation prices increased 1.0%. Additionally, medical care prices rose 1.0% at the start of the fourth quarter following a 0.2% gain the month prior. On the weaker side, education and communication costs were flat, while apparel prices dropped 1.8%, the second consecutive month of decline.

·      PPI (Nov 14) – The PPI rose 0.4% in October, a tenth of a percentage point more than expected, according to Bloomberg, and a six-month high. Year-over-year, the PPI rose 1.1%, surpassing expectations for a 0.9% gain, albeit the weakest pace since October 2016. In the details, food prices rose 1.3%, following a 0.3% gain the month prior, and energy prices popped 2.8% in October, following two consecutive months of decline. Year-over-year, energy prices fell 8.6%, the sixth consecutive month of decline. Excluding food and energy costs, the core PPI rose 0.3% at the start of Q4 and increased 1.6% over the past 12 months, the smallest gain since March 2017. Additionally, services costs rose 0.3%, due to a 0.8% gain in trade costs and a 0.3% increase transportation and warehousing costs in October. Other costs rose 0.1%, following a 0.3% rise the month prior.

·      PCE (Nov 27) – The PCE rose 0.2% in October, a tenth of a percentage point less than expected, according to Bloomberg, albeit a three-month high. Year-over-year, headline inflation increased 1.3% for the second consecutive month. Excluding food and energy, the core PCE rose 0.1% in October and increased 1.6% year-over-year, a four-month low.

Manufacturing and Production Activity

·      ISM Manufacturing (Nov 1) – The ISM Manufacturing Index rose from 47.8 to a reading of 48.3 in October, less than the rise to 48.9 expected, according to Bloomberg, and marking the third consecutive month of contraction (a reading below 50). In the details, new orders rose from 47.3 to 49.1, exports increased from 41.0 to 50.4 and employment improved from 46.3 to a reading of 47.7, a three-month high. On the weaker side, prices paid fell from 49.7 to a reading of 45.5, imports declined from 48.1 to 45.3, and production dropped from 47.3 to 46.2 at the start of the fourth quarter, a four-month low. Additionally, backlog of orders fell 1 point to 44.1 and supplier deliveries decreased from 51.1 to 49.5 at the start of Q4, the lowest reading since February 2016.

·      Factory Orders (Nov 5) – Factory orders declined 0.6% in September, more than the 0.5% drop expected, according to Bloomberg, and a four-month low. Year-over-year, factory orders fell 3.5%, the weakest pace since July 2016.

·      ISM Non-Manufacturing (Nov 5) – The ISM Non-Manufacturing Index rose from 52.6 to a reading of 54.7 in October, more than the expected rise to a reading of 53.5, according to Bloomberg, and a two-month high. In the details, supplier deliveries rose from 51.0 to 52.5, business activity gained from 55.2 to 57.0, and employment increased from 50.4 to 53.7 at the start of Q4, a three-month high. On the weaker side, prices paid fell from 60.0 to 56.6 and backlog of orders declined from 54.0 to a reading of 48.5, the lowest since December 2016. Additionally, exports decreased 2 points to a reading of 50.0 and imports declined from 49.0 to 48.5 in October, an eight-month low.

·      Empire Manufacturing (Nov 15) – The Empire Manufacturing Index unexpectedly declined from 4.0 to a reading of 2.9 in November, a five-month low. According to Bloomberg, the index was expected to rise to a reading of 6.0 in the second month of Q4. In the details, new orders rose from 3.5 to a reading of 5.5, a three-month high, and employment increased from 7.6 to a reading of 10.4 in November, a seven-month high. On the weaker side, shipments fell from 13.0 to 8.8, the average workweek declined 6 points to 2.3, and prices paid fell from 23.1 to 20.5, the lowest reading since June 2017.

·      Industrial Production (Nov 15) – Industrial production dropped 0.8% in October, double the decline expected, according to Bloomberg, and the largest drop since May 2018. 

·      Capacity Utilization (Nov 15) – Capacity utilization fell from 77.5% to 76.7% at the start of Q4, more than the decline to 77.0% expected, according to Bloomberg, and the lowest since September 2017.

·      Philly Fed Business Outlook Survey (Nov 21) – The Philly Fed Index rose from 5.6 to a reading of 10.4 in November, more than the expected rise to 6.0, according to Bloomberg, and a two-month high. In the details, delivery time rose from 8.0 to 8.5 in November, a two-month high. On the weaker side, employment fell from 32.9 to a reading of 21.5, and new orders declined from 26.2 to a reading of 8.4 in November, a five-month low. Additionally, prices paid dropped from 16.8 to 7.8, and shipments decreased from 18.9 to 9.8 in November, a nine-month low.

·      Kansas City Fed Manufacturing (Nov 22) – The Kansas City Fed Index unexpectedly held steady at a reading of -3 in November for the second consecutive month. According to Bloomberg, the index was expected to rise to a reading of -2.

·      Dallas Fed Manufacturing (Nov 25) – The Dallas Fed Manufacturing Outlook Index rose from -5.1 to -1.3 in November, more than the expected rise to a reading of -3.8, according to Bloomberg, and a two-month high.

·      Richmond Fed Manufacturing (Nov 26) – The Richmond Fed Index declined from +8 to a reading of -1 in November, more than the expected decline to +5, according to Bloomberg, and a two-month low.

·      Durable Goods (Nov 27) – Durable goods orders unexpectedly rose 0.6% in October, a three-month high. According to Bloomberg, durable goods orders were expected to decline 0.9% at the start of the fourth quarter. Year-over-year, however, headline orders dropped 0.9% in October, the third consecutive month of decline. Transportation orders rose 0.7%, following a 3.2% increase the month prior, thanks to a 10.7% gain in civilian aircraft orders. Vehicles and parts orders, meanwhile, dropped 1.9%, the third consecutive month of decline. Excluding transportation, durable goods orders rose 0.6% but fell 0.6% over the past 12 months. In other details, machinery orders gained 1.3%, fabricated metals orders rose 1.8%, and computers and electronics orders increased 0.7% in October, following four consecutive months of decline. On the weaker side, primary metals orders fell 1.4%, and electrical equipment orders dropped 1.7% in October, a two-month low.

·      Capital Goods (Nov 27) – Capital goods orders rose 5.4% in October, a three-month high. Nondefense capital goods orders increased 3.2% at the start of the fourth quarter following two consecutive months of decline. Capital goods orders excluding aircraft and defense – a proxy for business investment – rose 1.2% in October, a nine-month high. Year-over-year, however, business investment fell 0.4% following a 0.8% decline the month prior, and down from a recent peak of 13.3% in September 2017.

·      Chicago PMI (Nov 27) – The Chicago PMI rose from 43.2 to a reading of 46.3 in November, less than the expected rise to 47.0, according to Bloomberg, albeit a two-month high. In the details, two of the five components – prices paid and supplier deliveries – gained in the second month of Q4.

Housing Market Activity

·      Construction Spending (Nov 1) – Construction spending rose 0.5% in September, more than the 0.2% gain expected, according to Bloomberg, and a two-month high. Construction spending has averaged -0.1% over the last six months and fell 2.0% year-over-year at the end of the third quarter, the eleventh consecutive month of decline.

·      NAHB Housing Market Index (Nov 18) – The NAHB Housing Market Index unexpectedly declined 1 point to a reading of 70 in November, a two-month low. According to Bloomberg, the index was expected to remain at a reading of 71 for the second consecutive month.

·      Building Permits (Nov 19) – Building permits unexpectedly rose 5.0% in October from 1,391k, revised up from a preliminary reading of 1,387k, to a 1,461k unit pace, the highest level since May 2007. According to Bloomberg, building permits were expected to decline 0.4% in October. Year-over-year, building permits rose 14.1% in October, following an 8.0% gain in September. Single family permits rose 3.2% in October and increased 7.5% year-over-year, following a 2.7% gain the month prior. Multi-family permits, meanwhile, gained 8.2% at the start of Q4 and rose 26.9% year-over-year, the most since November 2015.

·      Housing Starts (Nov 19) – Housing starts rose 3.8% in October, pulling the annual pace up from 1,266k, revised from a preliminary reading of 1,256k, to 1,314k, a two-month high. According to Bloomberg, starts were expected to rise 5.1% at the start of the fourth quarter. Single family starts gained 2.0% and multi-family starts rose 8.6% in October, following a 25.3% decline the month prior. Year-over-year, housing starts rose 8.5% at the start of Q4, following a 2.4% increase in September, thanks to an 8.2% rise in single family starts and a 9.2% gain in multi-family starts, a two-month high. On a regional basis, starts rose in three of the four regions of the country at the start of the fourth quarter: starts increased 8.7% in the Midwest, 0.7% in the South, and 17.6% in the West. Starts dropped 21.9%, however, in the Northeast, the second consecutive month of decline.

·      Existing Home Sales (Nov 21) – Existing home sales rose 1.9% from 5.36m to a 5.46m unit pace in October, a two-month high. According to Bloomberg, existing home sales were expected to rise 2.0% at the start of Q4. Single family sales rose 2.1%, while multi-family sales were flat in October for the second consecutive month. Year-over-year, existing home sales rose 4.6% at the start of Q4 following a 3.9% gain in September, with single family sales rising 5.4%, while multi-family sales declined 1.7%. From a price standpoint, the median cost of a previously owned home rose 6.2% in October from a year earlier to $271k.

·      New Home Sales (Nov 26) – New home sales unexpectedly fell 0.7% in October from 738k to a 733k unit pace, a two-month low. According to Bloomberg, new home sales were expected to rise 0.7% at the start of Q4. Year-over-year, sales surged 31.6% following a 21.6% rise the month prior. The months’ supply of new homes rose from 5.2 to 5.3 months, a two-month high. From a price standpoint, the median cost of a newly constructed home rose 2.1% in October from the month prior to $317k. Year-over-year, however, new home prices fell 3.5% at the start of the fourth quarter.

·      S&P/CS 20 City Index (Nov 26) – The S&P Case-Shiller 20 City Home Price Index rose 0.36% in September, more than the 0.30% rise expected, according to Bloomberg, and the fastest pace in eleven months. Year-over-year, house prices rose 2.10%, a three-month high.

·      Pending Home Sales (Nov 27) – Pending home sales unexpectedly fell 1.7% in October, a three-month low. According to Bloomberg, pending home sales were expected to rise 0.2% at the start of Q4. Year-over-year, pending home sales rose 3.9%, a two-month low, and following a 6.3% gain the month prior.

Trade and Currency

·      U.S. Dollar

o  (Nov 20) – The dollar rallied after President Trump signed a bill backing Hong Kong protesters into law, despite Beijing’s objections. At $97.99, the dollar traded up 0.1% from the day prior and 0.2% higher since the start of the week.

·      Trade (Nov 5) – The trade balance narrowed 4.7% from $55.0b to $52.5b in September, more than the decline to $54.4b expected, according to Bloomberg, and the lowest since April. Global imports dropped 1.7% to $258.4b, while exports edged down 0.9% to $206.0b. Imports from China specifically fell 4.9% in September to $37.0b, while exports to China dropped 10% to $9.0b, a five-month low.

·      Import Prices (Nov 15) – Import prices unexpectedly fell 0.5% at the start of Q4, more than the 0.2% decline expected, according to Bloomberg, and a four-month low. Year-over-year, import prices dropped 3.0%, the biggest decline since July 2016 after decreasing 2.1% in September.

Monetary Policy, Reports, and Commentary

·      Atlanta Fed GDPNow Forecast

o  (Nov 27) – Following upward revisions to third-quarter GDP from 1.9% to 2.1% and an unexpected 0.6% rise in durable goods orders in October, the Atlanta Fed’s Q4 GDP estimate was revised higher from 1.4% to 1.7%.

·      Fed Speak

o  (Nov 8) – The San Francisco Fed held the U.S. central bank's first-ever conference on the "Economics of Climate Change.” “It's important for us from a monetary policy perspective to know what the potential growth rate of the economy is and if climate events or climate risk is going to shave that off, even if it's over the long term," San Francisco Fed chief Mary Daly said. A "green interest rate" was just one of the topics discussed at the event, which was reportedly so oversubscribed that a webcast was created to meet demand.

o  (Nov 14) – Federal Reserve Chairman Jerome Powell testified before Congress. Reiterating the generally positive assessment offered in the October 30th FOMC statement, the Chairman again highlighted the “favorable” outlook for the U.S. economy now in its 11th year of expansion. The Chairman asserted a “solid rise” in household consumption coupled with a “healthy” job market has helped to offset the weakness in business investment, exports and manufacturing which has been restrained by “sluggish growth abroad and trade developments.” Inflation, meanwhile, the Chairman acknowledged continues to run below the Committee’s 2% objective – as it has for the better part of the past decade – but remains steadfast in the expectation (hope?) for price pressures to move back “near” the symmetric 2% target.

o  (Nov 26) – According to Federal Reserve Chairman Jerome Powell, the outlook for the U.S. economy appears to be a “glass half full” scenario. Speaking at the Greater Providence Chamber of Commerce annual dinner, the Chair said monetary policy is now well positioned to support a strong labor market and return inflation decisively to the Fed's 2% target: "At this point in the long expansion, I see the glass as much more than half full. With the right policies, we can fill it further, building on the gains so far and spreading the benefits more broadly to all Americans."

·      October 30th FOMC Meeting Minutes (Nov 20) – According to the October FOMC meeting minutes, most FOMC participants agreed that beyond October's cut monetary policy "would be well calibrated to support the outlook of moderate growth.” In other words, a growing number of Fed officials are confident earlier action taken in July, September and more recently in October is enough to stabilize the economy. While the Committee remains vigilant in assessing the evolution of the data, policy makers appear increasingly convinced a pause in rate reductions is warranted at year-end. Of course, going forward, should the fundamentals continue to weaken, the Fed will likely be forced to step back into the market come 2020 and provide additional support to avoid a further downturn. But for now, at least, a new lower range of 1.50% to 1.75% has been deemed “appropriate.”

Domestic News and Activity 

·      Politics and the Trump Administration

o  (Nov 5) – The Trump administration contemplated whether or not to eliminate existing tariffs on $112B of Chinese imports as part of a “Phase One” trade deal with China. Recall on September 1, the administration introduced a 15% tariff on $112B of Chinese goods after hitting $250B of goods with a 25% levy over the past 17 months. The “Phase One” pact focuses predominantly on agriculture exports, including an increased commitment from China regarding purchases of American farm goods, as well as adhering to international safety and regulatory standards. A preliminary deal is also said to include rules to deter currency manipulation and some provisions to protect intellectual property and open up Chinese industries to U.S. firms. The deal does not, however, cover forced technology transfers in great detail nor counterfeit of goods, two key issues the White House has been focusing on through the duration of the trade and tariff war.

o  (Nov 8) – Despite U.S. steel and aluminum tariffs on Europe, as well as $7.5B of duties on other European goods including French wine and cheese, President Trump did not increase tariffs on European cars.

o  (Nov 13) – Speaking at the Economic Club of New York, President Trump seemed somewhat confident that a "significant Phase One" deal could happen in the near-term, but reiterated that the U.S. will substantially raise tariffs on Chinese goods if no agreement is reached between the two countries.

o  (Nov 14) – Talks between Washington and Beijing hit a “snag” over the specific amount of agricultural purchases. While President Trump said China agreed to buy up to $50 billion in U.S. soybeans, pork and other agricultural products annually, Chinese officials were reportedly leery of putting an exact numerical commitment in the text of a potential agreement. 

o  (Nov 19) – President Trump met with Federal Reserve Chairman Jerome Powell. Following the meeting, the President tweeted, “Just finished a very good & cordial meeting at the White House with Jay Powell of the Federal Reserve. Everything was discussed including interest rates, negative interest, low inflation, easing, Dollar strength & its effect on manufacturing, trade with China, E.U. & others, etc...I protested fact that our Fed Rate is set too high relative to the interest rates of other competitor countries," adding that it should be lower than theirs.

o  (Nov 21) – According to new estimates from the OECD, the world economy is growing at the slowest pace since the financial crisis. The OECD cut its GDP growth forecast to 2.9% this year and next, and furthermore suggested it would be a policy “mistake” to consider these shifts “temporary factors” that could be addressed with monetary or fiscal policy. The report cited the trade war and a sharp Chinese slowdown, along with climate change, digitalization, and the crumbling of the multilateral order as the causes for the reduction in global activity.

o  (Nov 21) – President Trump signed the bill supporting Hong Kong protesters after passing the House 417-1. According to Bloomberg News, China's foreign ministry urged the U.S. to prevent it from becoming law and warned that the administration should not underestimate its determination to defend its "sovereignty, security and development interests."

o  (Nov 22) – President Trump signed a short-term spending bill into law, just hours before government funding was set to expire. The legislation funded the government through December 20. The short-term bill furthermore gave lawmakers more time to strike a longer-term appropriations deal.

International News and Activity 

·      European Union

o  (Nov 4) – According to incoming ECB President Christine Lagarde, those countries such as Germany and the Netherlands which have a government budget surplus deserve harsh criticism. “We should be happier to have a job than to have our savings protected," declared Lagarde in a public statement. Lagarde assumed the post of the ECB President after eight years as Chairwoman and Managing Director at the IMF, and replaces former ECB President Mario Draghi. Her latest comments suggest she's not only in favor of continuing to run externally accommodative policy and “flooding markets with euros,” but potentially willing to go after individual states that don't toe the line.

o  (Nov 6) – German factory orders rose 1.3% in September after back-to-back monthly declines in July and August, at -2.2% and -0.4%, respectively. Orders from other countries in the 28-nation Eurozone, meanwhile, dipped 1.8% in September. Furthermore, overall manufacturing activity in the region declined to a seven-year low with the Markit Eurozone Manufacturing PMI dropping to 45.9 in the latest October report, marking the ninth consecutive month of contraction. 

o  (Nov 14) – The German economy posted a meager 0.1% quarterly expansion in Q3, narrowly avoiding recession, thanks to consumers, state spending and construction activity. Despite minimally positive growth, Germany, however, continues to suffer from global uncertainty including weaker foreign demand, tariff disputes, Britain's decision to leave the European Union, and stricter regulation in the country’s key automobile industry.

o  (Nov 25) – The German IFO Business Climate Index rose from 94.7 to a reading of 95.0 in November, as expected, according to Bloomberg, and a four-month high.

·      The U.K.

o  (Nov 4) – The U.K. ordered a total freeze on fracking operations. Citing public safety after a series of tremors, the policy was a bit of a 180 for the Johnson government which previously supported the fracking industry as a way to cut Britain's reliance on foreign energy imports. According to Business Secretary Andrea Leadsom, the moratorium will stay in place for the foreseeable future, or until scientists say fracking can be done safely.

o  (Nov 7) – The Bank of England voted 7 to 2 to keep its key bank rate at 0.75% at its November policy meeting, the first decision since the departure date from the EU was delayed from October 31 to January 31 2020. Two policy makers, however, unexpectedly voted to lower interest rates due to signs of a deeper economic slowdown, and others said they would consider a cut if global and Brexit headwinds did not lift.

·      China

o  (Nov 4) – In part reflecting concerns of the ongoing trade and tariff war between the world’s two largest economies, Southeast Asian countries committed to signing an Asia Pacific trade pact in 2020 that would essentially cover a third of the globe's gross domestic product. According to reports, the aim of the agreement is to achieve an open, inclusive and rules-based international trading system along with an expansion of value chains. The Regional Comprehensive Economic Partnership, or RCEP, includes all ten Southeast Asian nations and five of their large trading partners: China, Japan, South Korea, Australia, and New Zealand. Negotiations for RCEP began in November 2012 at the ASEAN Summit in Cambodia and are expected to be completed by February 2020.

o  (Nov 7) – According to China's Ministry of Commerce, the world's two largest economies are working towards an agreement to remove duties on each other's goods in phases. "If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion," declared spokesman Gao Feng. While the first step of a “Phase One” deal remained a possibility, according to reports, the timeline remained uncertain.

o  (Nov 14) – China’s industrial production rose 4.7% year-on-year in October, below the median forecast of 5.4% and slower than September's 5.8% increase. Indicators also showed retail sales growth fell to a near sixteen-year low and fixed asset investment growth was the weakest on record.

·      Japan

o  (Nov 8) – Despite easy policy, some Japanese officials argued for further stimulus. “To speed up our recovery [from natural disasters], deal with risks from abroad and accelerate productivity growth, we are formulating an economic plan along the lines of a 15-month budget," said Yoshihide Suga, Japan's chief cabinet secretary. The BOJ already cut overnight interest rates to -0.1% and purchased trillions of yen.

-Lindsey Piegza, Ph.D., Chief Economist