Sweet n’ Sour

Sweet n’ sour.  Equities slipped slightly yesterday as investors assessed Congressional approval of the USMCA trade agreement within minutes of announcing articles of impeachment.  Conflicting information on the Phase One trade deal put stocks on a bumpy road in the session.




  • It’s crunch time.  Today is Wednesday (in case you had a rough sleep).  On Sunday, just four days away, a new set of tariffs is due to kick in.  Remember the List 4b tariffs?  If you don’t, let me remind you that the list contains mostly consumer electronic products from China.  You know the ones that EVERYONE has been buying in the lead-up to the holidays.  Around $156 billion worth of laptops, TV’s, game consoles, mobile phones, etc will be slapped with a 15% tariff.  That means that an iPhone will cost consumers more if the tariff takes effect.  You may recall that the President decided to put off the tariffs, originally scheduled to launch earlier in the year, after public outcry over a ruined Christmas shopping season.  Well, as mentioned just above, that time has come.  China and the US have zeroed in on a phased approach to a trade deal.  The approach makes sense as it allows the two sides to ease their way into a larger deal at the end of the day.  The first phase (Phase One) was supposed to capture the low-hanging fruit, making it easy for both sides to sign something without giving away the farm.  Originally announced in early October, a deal was supposed to be signed by Thanksgiving.   Clearly the signing did not happen, largely in part due to the two sides differing on the deal terms.  Since the announcement, the US has stepped up its requirements for Chinese agricultural product purchases, and China has demanded that some existing tariffs be rolled back.  The US has repeatedly stated that tariffs would only be rolled back if a Phase One deal was signed, and China is not willing to make such a large purchase commitment.  And, oh, they are still demanding that the US roll back some existing tariffs.  Looks like both sides have become too ambitious in their expectations for a Phase One deal, which was supposed to really serve as a truce.  Since the announcement, investors have been faced with many conflicting bits of information from both sides.  Finally, earlier this week, as if a calendar event popped up on someone’s phone, investors were reminded of that ugly List 4b tariff, unnerving investors.  It is now clear that the December 15th tariff hike is also on the table for negotiations.  I reported to you here yesterday morning that The Wall Street Journal announced that the two sides were working on a plan to avoid the tariff raise.  Futures markets, which were down overnight, quickly turned positive on the pre-bell news.  Enter Larry Kudlow, who is usually the “good cop”.  Kudlow quickly dispelled the rumor and said that tariffs would still take effect if a deal was not reached, causing markets to slip.  WHILE YOU SLEPT, White House advisor Peter Navarro was quoted saying that the President will “have a great deal or put the tariffs on”.  Ok, that may all be rhetoric to push China over the line and get a deal done (play your hand, if you have one).  The S&P500 is up almost +25% year to date and stock investors have high hopes for at least a Phase One trade deal.  Should talks break down and the tariffs kick in, things could get messy in a hurry.  The trade deal failure is just the beginning of it.  The new list of tariffs would have to be factored into next year’s earnings estimates which would likely put immediate pressure on stock prices.  Today is Wednesday.
  • Seeing dots.  It’s Fed day!  Today at 2:00 PM EST the FOMC will announce its policy decision followed by a statement and press briefing by the Fed Chairman.  Based on all of the speeches leading up to the meeting, it appears pretty clear that governors will be holding rates steady.  Furthermore in the wake of the recently strong jobs number, GDP, and tame PCE Deflator the Fed should be pleased with its current policy stance: wait and see.  Fed funds futures predict that there is a 2.2% chance that the central bank will lower rates today. Given that, investors and Fed watchers will be interested in what factors might change policy going forward.  Investors will also be interested in understanding more about the quietly emerging volatility in short term lending.  You may recall a few month’s back when overnight rates spiked causing the Fed to take rapid action.  While the immediate spike in rates was pushed back down, volatility still remains and the Fed has had its hands full since the pressure began.  Repo rates typically rise when there are large demands for cash by institutions and consumers, like when taxes are due or large purchases are being made.  Banks prefer to hold on to cash during these periods and thus demand higher interest in order to part with it.  We saw this at the end of the last quarter as corporate tax bills were due.  Overnight repo rates do not directly affect everyday folks, but they do enable large corporations and banks to operate smoothly in their day-to-day activities, so glitches can cause problems for institutions.  Expect to hear a lot about the Fed’s balance sheet and short term liquidity today.  Today, we will also get the FOMC’s latest Dot Plot projections in which Fed Governors predict where Fed Funds will be in the future.  The last dot plot showed that governors expected rates to remain unchanged through 2020 and begin to rise in 2021.  Many expect the dots to remain unchanged.  Along with the announcement, we will also get the Fed’s estimates for economic growth and employment.  Those, too are expected to remain largely unchanged.  As usual, markets will be volatile through the latter part of the session.




Stocks slipped yesterday as investors await today’s Fed announcement and mixed messages on a Phase One trade deal.  The S&P500 dropped by -0.11%, the Dow Jones Industrial Average traded down by -0.1%, the Russell 2000 advanced by +0.13%, and the NASDAQ Composite Index fell by -0.07%.  Bonds climbed slightly and 10-year treasury yields advanced by +3 basis point to 1.84%.





– The Consumer Price Index excluding Food and Energy is expected to be at 2.3% year over year same as the prior reading.

– The FOMC rate decision is likely to have rates remain unchanged.


Skies and rails


I will be spending time in our Midtown, NY and Westchester offices over the next several days meeting clients.  After ringing in 2020, I will be in our Boca and Miami offices January 8th through the 10th.  Please reach out and set up some time to meet me!

daily chartbook 2019-12-11



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