November 2017 Month-In-Review
The Fed sat on the sideline this month, holding rates steady at 1.00%-1.25% at the November 1st FOMC meeting. But there was plenty of monetary policy news as the President nominated Governor Jerome Powell to replace Janet Yellen as Fed Chairman in 2018. Meanwhile, the timeline for tax reform was again extended as Republicans struggled to rally support for their latest version of the bill. Despite minimal traction, the President, eager to buoy the domestic economy to 4, 5 or 6% growth as a result of a reduced tax burden, continued to promise results by the end of the year, helping to drive the equity market to new highs.
Market Activity and Commodities
· Equities – Equities posted impressive gains in the month of November, reaching new record highs throughout the month. Starting at 2,579, the S&P 500 rose 2.6% in November, ending at a new high of 2,648. The Dow ended the month 3.6% higher at 24,272. To note, since the start of the year, U.S. equities rose over 17%.
· Treasuries – Treasury yields rallied through the month of November. The 10-yr treasury yield gained 4bps in the second to last month of the year, closing at 2.41%. The 2-yr treasury, meanwhile, gained 17bps in November, closing out the month at a high of 1.78%. Since January, the 10-yr is down 4bps and the 2-yr is up 57bps.
· Oil
o (Nov 6) – Oil prices rose following a new wave of arrests of royals and ministers in a Saudi corruption probe orchestrated by Crown Prince Mohammed bin Salman. The Crown Prince has also backed OPEC-led output cuts; the latest action signaled continued support for an extended reduction in production. Crude traded up 0.50% at $55.92 a barrel.
o (Nov 30) – Russia and OPEC oil producers agreed to extend production cuts until the end of 2018. Recall, this marks the second extension to the original output cut agreement reached in November 2016, reducing production by 1.8 million bpd. Following the news, oil prices traded up 0.86% at $57.79 a barrel.
National Growth and Outlook
· NFIB Small Business Optimism (Nov 14) – The NFIB Small Business Optimism Index rose from 103.0 to 103.8 in October, a two-month high.
· Leading Index (Nov 20) – The Leading Index increased 1.2% in October, the largest gain since December 2010, and following a 0.1% rise the month prior.
· Chicago Fed National Activity Index (Nov 21) – The Chicago Fed National Activity Index rose from 0.36 to 0.65 in October, the highest level since January 2012. 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, 56 of the 85 monthly individual indicators made positive contributions, while 29 made negative contributions.
· GDP (Nov 29) – Q3 GDP was revised up from 3.0% to 3.3% in the second-round report, a twelve-quarter high. Following a similarly sized 3.1% rise in Q2 and a 1.2% gain at the start of the year, growth is trending at 2.5% thus far for 2017, modestly above the 2.2% pace established since the end of the financial crisis. Year over-year, growth continues to trend at a 2.3% pace, up slightly from a 2.2% pace reported at the end of the first half of the year. In the details, personal consumption was revised down from 2.4% to 2.3% in the second-round Q3 GDP report, reflecting a downward revision to goods consumption from 4.2% to 4.1%. Service consumption was unchanged at 1.5% in Q3, down from a 2.3% increase in the second-quarter. Gross private investment was revised up from 6.0% to 7.3% in the second-round Q3 GDP report, following a 3.9% rise April to June. Stronger inventory growth helped boost Q3 investment, revised up from $35.8 billion to $39.0 billion, eight times the stock reported the quarter prior. Excluding inventories, GDP rose 2.5% in Q3. Additionally, nonresidential investment was revised up from 3.9% to 4.7%, reflecting stronger gains in equipment (10.4%) and intellectual property (5.8%). Structural investment, on the other hand, was revised down from a 5.2% decline to a 6.8% decrease in the second-round Q3 GDP report. Trade activity was revised down in the second-round report: exports were revised down from 2.3% to 2.2%, as were imports, revised from a 0.8% decline to a larger loss of 1.1% in the second-round Q3 GDP report. Finally, government consumption was revised up from a 0.1% decline to a 0.4% increase in the second-round Q3 report, contributing 0.07% to headline growth and a four-quarter high.
Employment
· Jobless Claims
o (Nov 2) – Initial jobless claims fell 5k from 234k to 229k in the week ending October 28. The four-week average decreased from 240k to 233k.
o (Nov 9) – Initial jobless claims rose 10k from 229k to 239k in the week ending November 4. The four-week average, however, decreased from 233k to 231k.
o (Nov 16) – Initial jobless claims rose 10k from 239k to 249k in the week ending November 11. The four-week average rose from 231k to 238k.
o (Nov 22) – Initial jobless claims declined 13k from 252k to 239k in the week ending November 18. The four-week average, however, rose 1k from 239k to 240k.
o (Nov 30) – Initial jobless claims fell 2k from 240k to 238k in the week ending November 25. The four-week average, however, rose from 240k to 242k.
· Nonfarm Payrolls (Nov 3) – Nonfarm payrolls rose 261k in October, below the 313k rise expected, according to Bloomberg, although still the largest gain since July 2016. September payrolls were revised up from -33k to +18k and August payrolls were also revised up from +169k to +208k. Thus, the overall change (September data + net revisions) was 351k. The six-month average rose from 154k to 163k in October, a three-month high. In the details, private employment rose 252k in October, the largest gain since November 2015. Goods-producing payrolls increased 33k in October, thanks in part to an 11k rise in construction payrolls. Manufacturing payrolls rose 24k in October, a two-month high. Service producing payrolls increased 219k in October, the most since July 2016. Business services payrolls posted a gain of 50k payrolls, education and health payrolls rose 41k, and trade and transport payrolls increased by 6k in October. Also, financial services payrolls improved by 5k in October and leisure and hospitality payrolls rose 106k in October, nearly offsetting the 102k decline the month prior. On the weaker side, information services payrolls posted a 1k decline in October following a 3k decline the month prior, and retail payrolls declined 8k in October, the fifth month of decline in the past six. Government payrolls increased by 9k in October, a two-month high, thanks to a 5k gain in federal payrolls in October.
· Participation Rate (Nov 3) – The civilian labor force decreased by 765k in October, pulling the participation rate down from 63.1% to 62.7%, a five-month low.
· Unemployment Rate (Nov 3) – Household employment fell 484k in October, the largest decline since February 2009 and pulling the unemployment rate down one-tenth of a percentage point from 4.2% to 4.1% in October, the lowest since December 2000.
· Average Hourly Earnings (Nov 3) – Average hourly earnings were flat in October following a 0.5% rise the month prior. According to Bloomberg, wages were expected to rise 0.2%. Year-over-year wages increased 2.4%, the slowest pace since February 2016.
· Average Weekly Hours (Nov 3) – The average workweek remained unchanged at 34.4 in October for the fourth consecutive month.
· JOLTS (Nov 7) – The number of job openings increased 0.05% in September from 6,090k to 6,093k, a two-month high.
Consumer Activity and Confidence
· Vehicle Sales (Nov 1) – Total vehicle sales fell 2.7% in October from 18.47m to a 17.98m unit pace, a two-month low. Year-over-year, vehicle sales increased 1.2%, following a 4.7% increase in October.
· Consumer Credit (Nov 7) – Consumer credit increased by $20.83b in September following a $13.14b increase the month prior. Since the start of the year, monthly gains in consumer credit have averaged $15.86b.
· Retail Sales (Nov 15) – Retail sales rose 0.2% in October, surpassing expectations of no change, according to Bloomberg, and following a 1.6% rise the month prior. Year-over-year, retail sales decreased from 4.8% to 4.6% in October, a two-month low. Car sales rose 0.7% in October, while gasoline stations sales fell 1.2%, a four-month low. Excluding autos, retail sales rose 0.1% at the start of Q4 and increased 4.3% over the past 12 months. Excluding autos and gasoline, retail sales increased 0.3% in October and rose 3.9% year-over-year. In the details, furniture and electronics sales rose 0.7% and clothing sales increased 0.8% in October, a seven-month high. Also, food and beverage sales rose 0.7% in October following a 0.8% increase the month prior. Sporting goods sales rose 1.5% in October, the largest gain since September 2016. On the weaker side, general merchandise sales were unchanged in October following a 0.3% increase the month prior. Building materials sales fell 1.2% and non-store retailers sales declined 0.3% in October, a two-month low.
· University of Michigan Consumer Sentiment
o (Nov 10) – The University of Michigan Consumer Sentiment Index fell from 100.7 to 97.8 in the preliminary November report, a two-month low. In the details, consumers’ expectations declined from 90.5 to 87.6 and consumers’ assessment of current conditions fell from 116.5 to 113.6 in the preliminary November print, a two-month low.
o (Nov 22) – The University of Michigan Consumer Sentiment Index rose from 97.8 in the preliminary reading to 98.5 in the final November report. In the details, consumers’ expectations improved from 87.6 to 88.9, while consumers’ assessment of current conditions declined from a preliminary reading of 113.6 to 113.5 in the final November print, a two-month low.
· Consumer Confidence (Nov 28) – The Consumer Confidence Index rose from 126.2 to 129.5 in November, surpassing expectations of a decrease to 124.0, according to Bloomberg, and the highest level in seventeen years! The three-month average, furthermore, improved from 122.4 to 125.4, noticeably above the recent low of 94.8 in June 2016. In the details, expectations gained from 109.0 to 113.3, the highest since September 2000, and present situation increased from 152.0 to 153.9 in November, the highest reading since June 2001.
Inflation
· PPI (Nov 14) – The PPI rose 0.4% in October for the second consecutive month, widely surpassing expectations of a 0.1% rise, according to Bloomberg. Year-over-year, headline producer prices increased from 2.6% to 2.8%, the fastest pace since February 2012 and the third consecutive reading above 2%. In the details, food prices rose 0.5% in October, a four-month high, while energy prices were flat, following a 3.4% rise the month prior. Year-over-year, energy prices rose 7.6%. Excluding food and energy costs, the core PPI also rose 0.4% in October and increased 2.4% over the past 12 months, up from a 2.2% annual pace reported in September. At 2.2%, like the headline, core inflation accelerated at the fastest pace since February 2012 with three consecutive readings above 2%. Additionally, goods prices rose 0.3% in October following a 0.7% increase the month prior. Services costs increased 0.5% in October, a six-month high, thanks to a 1.1% increase in trade prices, a nine-month high. Transportation and warehousing costs gained 0.8% at the start of Q4.
· CPI (Nov 15) – The CPI rose 0.1% in October, as expected, according to Bloomberg, and following a 0.5% rise the month prior. Year-over-year, headline consumer prices rose 2.0% in October, down from a 2.2% annual pace reported in September, and a two-month low. Energy costs fell 1.0% in October, the first monthly decline since July, and food prices were unchanged in October following a 0.1% increase in September. Excluding food and energy, the core CPI rose 0.2% in October and 1.8% over the past 12 months, a six-month high. In the details, services costs rose 0.3% in October. Housing prices also increased 0.3% in October, thanks to a 0.3% increase in the OER and a 0.4% rise in fuels and utilities prices, a five-month high. Also, medical care costs rose 0.3% in October, a three-month high, education and communication costs increased 0.2% and other goods and services costs gained 0.5% in October, thanks to a 1.6% jump in tobacco prices in October. On the weaker side, apparel prices fell 0.1% in October for the second consecutive month. Recreation prices declined 0.1%, transportation prices fell 0.5%, and commodities prices declined 0.2% in October, a four-month low.
· PCE (Nov 30) – The PCE rose 0.1% in October, in line with expectations, according to Bloomberg. Year-over-year, headline inflation increased 1.6% in October, a two-month low, and still below the recent peak of 2.2% in February. Headline inflation has trended below 2% for eight consecutive months. Excluding food and energy costs, the core PCE rose 0.2% in October and 1.4% over the past 12 months for the second consecutive month. Core inflation has trended below 2% since May 2012.
Manufacturing and Production Activity
· ISM Manufacturing (Nov 1) – The ISM Manufacturing Index fell from 60.8 to 58.7 in October, a larger-than-expected decline, according to Bloomberg, and a two-month low. In the details, prices paid decreased from 71.5 to 68.5 in October, a two-month low. Inventories fell from 52.5 to 48.0 and production declined from 62.2 to 61.0 in October, a two month low. New orders also decreased from 64.6 to 63.4 and employment fell to 59.8 in October following a 60.3 reading the month prior. Finally, imports remained at 54.0 for the second consecutive month in October.
· ISM Non-Manufacturing (Nov 3) – The ISM Non-Manufacturing Index rose from 59.8 to 60.1 in October, the highest since August 2005. In the details, employment gained from 56.8 to 57.5, the highest since May, and inventories increased from 51.5 to 52.5 in October, a two-month high. On the weaker side, new orders fell from 63.0 to 62.8 and backlog of orders declined from 56.0 to 53.5 in October, a two-month low.
· Factory Orders (Nov 3) – Factory orders rose 1.4% in September following a 1.2% increase the month prior. Year-over-year factory orders rose 7.3% in September, a three-month high.
· Empire Manufacturing (Nov 15) – The Empire Manufacturing Index declined from 30.2 to 19.4 in November, more than the expected decline to 25.1, according to Bloomberg, and a four-month low. In the details, new orders rose from 18.0 to 20.7 in November, a two-month high. On the other hand, shipments fell from 27.5 to 18.4, employment declined from 15.6 to 11.5 and the average workweek posted a 0.8 decline in November, the lowest since January. Finally, prices paid fell from 27.3 to 24.6 in November, a four-month low.
· Industrial Production (Nov 16) – Industrial production rose 0.9% in October, surpassing the 0.5% increase expected, according to Bloomberg, and the largest increase since April.
· Capacity Utilization (Nov 16) – Capacity utilization increased from 76.4% to 77.0% in October, the largest increase since April 2015.
· Philly Fed Business Outlook Survey (Nov 16) – The Philly Fed Index declined from 27.9 to 22.7 in November, a three-month low. In the details, prices paid rose from 38.1 to 39.0 and new orders increased from 19.6 to 21.4 in November, a two-month high. On the weaker side, the average workweek declined from 19.4 to 13.7, employment fell from an all-time high of 30.6 to 22.6 and shipments decreased from 24.4 to 21.7 in November, a four-month low.
· Kansas City Fed Manufacturing (Nov 17) – The Kansas City Fed Index fell from a high of 23 to a reading of 16 in November, a two-month low. The Kansas City Fed Index, however, has maintained a positive reading for fifteen consecutive months, matching the streak in 2014-2015.
· Durable Goods (Nov 22) – Durable goods orders fell 1.2% in October, below the 0.3% rise expected, according to Bloomberg, and following a 2.2% increase the month prior. Year-over-year, headline orders rose 5.9% in October, a three-month high. Transportation orders fell 4.3% in October, nearly offsetting the 4.4% increase the month prior, thanks to an 18.6% decrease in civilian aircraft orders. Excluding transportation, durable orders gained 0.4% in October and increased 8.5% over the past 12 months. In the details, primary metals orders rose 1.3% in October, a two-month high, machinery orders increased 0.6% and electrical equipment orders gained 0.8% in October, following a 1.3% increase the month prior. On the weaker side, fabricated metals orders declined 0.9% in October, the largest drop since April.
· Capital Goods (Nov 22) – Capital goods orders fell 5.1% in October following a 6.1% increase the month prior. Non-defense capital goods decreased 4.5% in October, a three-month low. Capital goods excluding aircraft and defense – a proxy for business investment – decreased 0.5% in October, the largest decline since September 2016 and the first negative reading since June. Year-over-year, business investment increased 9.3%.
· Dallas Fed Manufacturing (Nov 27) – The Dallas Fed Manufacturing Outlook Index fell from 27.6 to 19.4 in November, a three-month low. According to Bloomberg, the Dallas Index was expected to decline to 24.0.
· Richmond Fed Manufacturing (Nov 28) – The Richmond Fed Index jumped from 12 to a reading of 30 in November, surpassing expectations of a rise to 14, according to Bloomberg, and the highest reading on record. Leading the rise was an 18 point jump in new orders from 17 to 35 and a 24 point increase in shipments to 33 from 9.
· Chicago PMI (Nov 30) – The Chicago PMI fell from 66.2 to 63.9 in November, a three-month low, but still marking the twenty-first consecutive month of expansion (a reading above 50). At present, the Chicago PMI is on track to post its first full year of expansion since 2014. In the details, all of the five components – new orders, backlog of orders, prices paid, employment and production – improved in November.
Housing Market Activity
· Construction Spending (Nov 1) – Construction spending rose 0.3% in September following a 0.5% increase the month prior. Construction spending averaged -0.2% over the last six months and rose 1.1% year-over-year.
· NAHB Housing Market Index (Nov 16) – The NAHB Housing Market Index rose from 68 to a reading of 70 in November, an eight-month high. More recently, the NAHB Index peaked at 71 in March but has since lost momentum.
· Housing Starts (Nov 17) – Housing starts rose 13.7% in October following a 3.2% decrease the month prior, and pulling the annual pace up from 1,135k to 1,290k, a one-year high. Single family starts rose 5.3% and multi-family starts popped 36.8% in October, the largest increase since December 2016. Year-over-year, however, housing starts fell 2.9% in October, led by a 9.6% decline in multi-family starts; year-over-year, single family starts rose 0.7% in October. On a regional basis, three out of four regions posted increases in October starts: starts rose 42.2% in the Northeast, 18.4% in the Midwest and increased 17.2% in the South. On the other hand, housing starts fell 3.7% in the West, a three-month low.
· Building Permits (Nov 17) – Building permits rose 5.9% in October from 1,225k to a 1,297k unit pace, a nine-month high. Year-over-year, permits rose 0.9% in October following a 3.5% decrease the month prior. Single family permits rose 1.9% in October and increased 7.7% year-over-year. Multi-family permits rose 13.9% in October but decreased 9.5% year-over-year.
· Existing Home Sales (Nov 21) – Existing home sales rose 2.0% in October from 5.37m to a 5.48m unit pace, significantly above the 0.2% rise expected, according to Bloomberg, and a four-month high. The strength in monthly home sales was driven by an increase in single family sales, up 2.1% in October, a seven-month high; multi-family sales rose 1.7% in October, nearly offsetting the 1.6% decline the month prior. Year-over-year, multi-family sales were unchanged and single family sales decreased 1.0% in October. From a price standpoint, the median cost of a previously owned home rose 5.5% from a year earlier to $247k in October.
· New Home Sales (Nov 27) – New home sales unexpectedly rose 6.2% in October from 645k to a 685k unit pace, the highest since October 2007. With a rapid rise in purchases, the months’ supply of new homes decreased from 5.2 to 4.9 months in October, the lowest supply since July 2016. From a price standpoint, the median cost of a newly constructed home fell 3.7% in October to $313k and increased 3.3% over the past 12 months, a two-month high.
· S&P/CS 20 City Index (Nov 28) – The S&P Case-Shiller 20 City Home Price Index rose 0.5% in September and 6.2% year-over-year, the largest gain since July 2014.
· Pending Home Sales (Nov 29) – Pending home sales rose 3.5% in October, significantly above the 1.0% increase expected, according to Bloomberg, and following a 0.4% decline the month prior. Year-over-year, pending home sales increased 1.2%, the largest increase since January.
Trade and Currency
· U.S. Dollar
o (Nov 8) – Reduced confidence in meaningful tax reform rattled the markets following the latest Senate modifications that call for the elimination of the ObamaCare individual insurance mandate. The U.S. dollar took a hit, falling 0.1% at $94.87.
· Trade (Nov 3) – The U.S. trade balance narrowed by $0.8 million from $44.3 billion to $43.5 billion in September. According to Bloomberg, economists forecasted a $43.2 billion decline. President Trump’s emphasis on narrowing the trade gap has put an increased focus on the Commerce Department's monthly report since the start of the year.
· Import Prices (Nov 16) – Import prices rose 0.2% in the October report and 2.5% year-over-year, two-tenths of a percentage point above expectations, according to Bloomberg. Since the start of the year, trade prices have increased an average of 0.2%.
Monetary Policy, Reports, and Commentary
· Atlanta Fed GDPNow Forecast
o (Nov 30) – According to the Atlanta Fed’s GDPNow model, following a weaker-than-expected consumer spending and inflation report in November, U.S. GDP growth in the fourth-quarter of 2017 is expected to increase 2.7%, following a 3.0% increase forecasted on November 28th, and even further below earlier estimates of 3.5%.
· Fed Speak
o (Nov 8) – Philadelphia Fed President Patrick Harker suggested he would be in support of a third-round 2017 rate hike at the December FOMC meeting. Going forward, however, in order to support further tightening next year, Harker wants to first see inflation moving higher. Speaking in an interview at the Philadelphia Fed, Harker reiterated that he is still forecasting three additional rate increases for 2018 at this point, however, as data comes in, he will "reassess" the need for further tightening. Harker, furthermore, went on to explain that his motivation for a continued rise in rates is to provide policymakers with "legroom" as opposed to reining in an overheating economy; "so that if and when the next recession comes, we'll have some room to move," he said.
o (Nov 28) – Minneapolis Federal Reserve President Neel Kashkari said slow inflation doesn’t mean the Fed needs to hit the brakes yet. Speaking at Winona State University’s Town Hall Forum, Kashkari went on to praise Powell – the presumed incoming Fed Chairman – and noted that the central bank will be in "good shape" if President Trump keeps nominating "credible" candidates.
· November 1st FOMC Meeting – As expected, the Fed opted to leave the Federal funds rate unchanged at a current range of 1-1.25% at the November FOMC meeting. The market widely expected November to be a nonevent ahead of December’s meeting where the Committee is widely expected to raise rates for the third time this year. In the statement, the Fed remained upbeat in their assessment of the overall economy noting growth has been improving at a “solid rate” and that the labor market has “continued to strengthen” despite recent storms. The statement also noted that household spending has been expanding at a “moderate rate” and that business fixed investment has “picked up” recently. On the inflation side, the Fed continued to acknowledge the sluggishly low level of inflation but remains confident that prices will move back to the Fed’s 2% objective over the medium-term. In September, the Fed announced the initiation of a program to begin to wind down the balance sheet by capping principal reinvestment. In the November meeting statement, the Fed confirmed that the “program initiated in October 2017 is proceeding.” The vote to keep rates unchanged was unanimous.
· Governor Jerome Powell Senate Confirmation Hearing (Nov 29) – In his Senate confirmation hearing, Jerome Powell signaled ongoing support to current Fed policy, suggesting the new Powell-led Fed would little deviate from the current slow and "gradual" pathway to higher rates, as well as a controlled wind down of the balance sheet. In prepared remarks to the Senate Banking Committee, the Federal Reserve Chair nominee said, "Our aim is to sustain a strong jobs market with inflation moving gradually up toward our target." We furthermore, "expect interest rates to rise somewhat further and the size of our balance sheet to gradually shrink." He furthermore went on to reiterate his stance on deregulation, responding to Massachusetts Senator Elizabeth Warren that he couldn't think of any rule that should be "toughened." Instead, Powell suggested he would welcome a review and discussion of some regulation that has caused an undue burden on the industry. Powell was calm and articulate throughout the two-hour testimony, offering in many cases clear one word, “yes” or “no” answers.
Domestic News and Activity
· Politics and the Trump Administration
o (Nov 2) – President Trump announced his nomination for Federal Reserve Governor Jerome Powell to replace Chair Yellen to lead the Federal Reserve in 2018. Yellen's term as Chairman expires February 3, 2018, although her term as a member of the Board of Governors is not set to expire until January 31, 2024. Following the nomination, the Senate will need to confirm Powell; having been confirmed twice before to his post on the Board, most expect he will pass without any delay. As opposed to other contenders such as Cohn or Warsh who were seen as Fed outsiders or potential disrupters such as John Taylor, Powell was widely scored as a "safe" bet.
o (Nov 6) – According to reports, New York Federal Reserve President William Dudley, widely considered one of the most "influential" voices on the FOMC, is preparing to retire next year, about six months earlier than planned. At this point, with longstanding vacancies left by Sarah Raskin and Jeremy Stein in 2014, and more recently the departure of Stanley Fischer last month, President Trump already has three other vacant seats to fill on the Fed's Board of Governors.
o (Nov 6) – While in Asia, President Trump met with Japanese Prime Minister Shinzo Abe to discuss, among other topics, how the two countries were working to counter the "dangerous aggressions" of North Korea. During the summit, the U.S. President declared that the "era of strategic patience" was over. According to reports, Trump also vowed to push for a "free and balanced trade partnership" with Japan following decades of "massive trade deficits."
o (Nov 6) – An attack at a church near San Antonio, Texas left 26 people dead and at least 20 more injured. The gunman was identified as Devin Kelley, a former Air Force recruit who had reportedly been court-martialed and discharged for bad conduct. Following the incident, President Trump issued a statement suggesting it wasn't "a guns situation," but a "mental health problem at the highest level."
o (Nov 7) – According to President Trump, "North Korea is a worldwide threat that requires worldwide action." Speaking at a news conference in South Korea, President Trump offered optimism, however, regarding the rising tensions between the U.S. and North Korea. "Ultimately, it will all work out; it always works out; it has to work out," he said.
o (Nov 7) – Legislators continued to debate over the latest proposed tax cut bill. According to reports, there was fierce disagreement over key pieces of the bill including child tax credits, the elimination of state and local tax deductions (SALT), and whether to accept significantly larger budget deficits. According to the House Ways and Means Committee, the President's tax bill is expected to cost $1.5 trillion over the next ten years. Yet, according to the Joint Committee, the latest changes in the House have increased the 10-year deficit projection it would produce to $1.57 trillion, exposing the bill to a potential Democratic filibuster.
o (Nov 8) – Republicans lost races for governorship in Virginia and New Jersey, as well as control of the Washington state Senate. A slew of Democratic victories were also produced among the local mayoral races around the country, including Mayor Bill de Blasio in New York City who "cruised" to a second term.
o (Nov 20) – According to Bloomberg, Congressional support for the latest Republican tax plan appeared less than solid. Speaking to ABC, Republican Senator Susan Collins of Maine suggested tying a repeal of the individual insurance mandate under Obamacare to tax reform is a problem that will only serve to muddy the waters in terms of reaching an agreement across party lines. The plan "needs work" she said. Although, unlike a permanent cut in the corporate tax rate, Republicans appeared willing to negotiate when it came to the insurance mandate.
o (Nov 21) – U.S. District Court Judge William Orrick blocked President Trump's executive order to cut funding from sanctuary cities that limit cooperation with U.S. immigration authorities. Judge Orrick suggested the order itself would "cause constitutional injuries by violating the separation of powers doctrine," while depriving cities of their Tenth and Fifth Amendment rights. The Trump administration expectedly appealed the decision.
o (Nov 21) – The Trump administration asked the Supreme Court to reinstate the full travel ban after an appeals court ruled only a portion of the latest version could be enforced. The "full" version expands travel restrictions to include immigrants from North Korea and Venezuela in addition to those from six predominantly Muslim countries.
o (Nov 28) – According to Adobe, Cyber Monday sales hit a record of $6.59B, making it the largest U.S. online sales day ever. In comparison, calculations showed that Black Friday and Thanksgiving Day sales totaled $5.03B and $2.87B, respectively.
o (Nov 28) – The Department of Labor announced a delay for key provisions of the fiduciary rule. Pushing back implementation by 18 months, the extension is said to give the department time to receive public comments and satisfy the administration's call to review the "cost the rule poses to the wealth management industry and investors." At this point, the rule is scheduled to go into effect on July 1, 2019.
o (Nov 30) – President Trump nominated Marvin Goodfriend, a professor at Carnegie Mellon University and a former official at the Richmond Fed, to fill one of the vacant Governor posts, his third nomination thus far to the FOMC. Goodfriend has been somewhat critical of policy under Janet Yellen and in March scolded the Fed for its failure to "secure the credibility of its inflation target." Goodfriend has also suggested that rate decisions should be measured against a monetary rule like the Taylor Rule, which is a proposed guideline for how the Federal Reserve should alter interest rates in response to changes in economic conditions.
o (Nov 30) – The U.S. called on all countries to suspend diplomatic ties with North Korea and furthermore requested that China stop crude trade with the rogue nation. The request came after Kim Jong Un's regime fired another intercontinental ballistic missile, the 3rd test of its kind and the 15th missile launch this year. According to Ambassador Nikki Haley, "The regime's action brings the world closer to war, not further from it." Speaking at a U.N. Security Council meeting, she went on to say, "If war comes, the North Korean regime will be utterly destroyed."
International News and Activity
· European Union
o (Nov 1) – Ousted Catalonia leader Carles Puigdemont and four associates reportedly turned themselves in to Belgian police under charges of rebellion and sedition. At the same time, according to reports, two polls were released suggesting pro-Catalonia independence parties would likely win December's regional election together. A majority of seats in parliament is needed to revive the secession campaign; many analysts suggest the cause will fall short of such a threshold.
o (Nov 9) – Greece is expected to make a further recovery in the coming year, as the indebted nation faces an upcoming exit from the latest Eurozone bailout program and returns to market financing. According to the European Commission, Greece's primary surplus is expected to rise to 3.9% of GDP in 2018 with an expectation for public debt to decline rapidly over the next two years to 170.1% in 2019 from 179.6% this year.
o (Nov 20) – German Chancellor Angela Merkel failed to form a government as the Social Democratic Party’s executive committee voted unanimously against a grand coalition, increasing speculation of new German elections and furthermore, according to reports, raising concerns over the future of the country's longest-serving leader. Merkel has been Chancellor of Germany for the past 12 years. At this point, she is still expected to stay on as acting Chancellor but her role has been weakened and may complicate or diminish her sway in EU divorce.
o (Nov 21) – Paris was chosen as the new host for the European Banking Authority after Britain leaves the bloc. According to reports, Paris was chosen after three unsuccessful rounds of voting failed to produce a winner; with Paris tying Dublin in the third vote, the Estonian Chairman of the meeting chose the winner according to a "pre-agreed procedure."
o (Nov 30) – Eurozone inflation increased in November from 1.4% to 1.5%, falling short, however, of expectations for consumer prices to reach 1.6%, according to Bloomberg. According to reports, the rise was largely due to higher energy prices, leaving analysts to anticipate that inflation will continue to stay well below the ECB's target of 2% inflation.
· U.K.
o (Nov 2) – The Bank of England opted to raise rates for the first time in a decade from 0.25% to 0.50%. Investors were bracing for the 25bp increase but equally important, market watchers were focused on the degree of unity among policymakers as an indication of the likelihood of further rate increases near-term. A 7-2 decision suggested central bankers are more apt to continue with additional hikes into the new year. Officials also kept asset purchases unchanged at ￡435 ($574 billion) a month in a unanimous vote. Furthermore, members maintained their GDP forecast for 2017 and 2018 little changed at 1.6%. Although, the central bank's current inflation forecast of 2.8% was revised slightly higher to 3.0%.
o (Nov 8 ) – According to reports, a number of Wall Street firms suggested a "point of no return" for Brexit is fast approaching. According to the FT, financial institutions reached out to government officials overseas warning the lack of clarity on the divorce between the U.K. and the EU may force them to start moving staff out of London soon. Recall, the Brexit deadline has been set for March 2019.
o (Nov 10) – In order to avoid a "hard border on the island," EU officials are demanding Northern Ireland remain inside the European customs union and the single market following Brexit. This view directly contradicts the clear position taken by U.K. officials.
· China
o (Nov 6) – According to central bank governor Zhou Xiaochuan, China's financial system is becoming significantly more vulnerable due to high leverage. Xiaochuan has made a series of blunt debt-related warnings recently; in an article published on the PBOC website he suggests that there are "hidden, complex, sudden, contagious and hazardous," even as the overall health of the financial system remains “okay.”
o (Nov 10) – Following President Trump's visit to China, Chinese officials announced further steps towards liberalizing its financial system. According to reports, foreign ownership limits on banks and asset management companies will be removed. President Trump applauded the country's initiatives in opening its markets to foreigners; the latest announcements are a further indication of China's intentions to broaden market access to foreign participants.
o (Nov 30) – China's manufacturing PMI expanded from 51.6 to 51.8 in November, a two-month high. Additionally, the Chinese service activity PMI accelerated from 54.3 to 54.8. Further momentum in both the good and service sectors of the Chinese economy have offered the needed momentum for 7% growth across the first three quarters of the year. Further restraints, however, on credit going forward are likely to undermine the nation’s steady growth rate near-term.
· Japan
o (Nov 8) – According to reports, the IMF is encouraging Japan to continue with its massive monetary stimulus program to further support consumer prices. Sluggishly below the Bank of Japan's 2% target, the latest inflation figures reported a 0.7% rise in September. The IMF’s encouragement, however, appears unseeded as the BOJ has said it is nowhere near dialing back its huge asset purchases of 6 trillion yen ($53 billion) per year even as the U.S. and other European central banks appear to moving in the opposite direction with monetary policy accommodation removal.
· North Korea
o (Nov 28) – North Korea launched a Hwasong-15 missile, a new type of ICBM that can fly over 8,080 miles. This is the longest-range missile tested by the nation. Following the launch, President Trump told reporters, “It is a situation that we will handle.”
-Lindsey Piegza, Ph.D., Chief Economist