Thursday marks Thanksgiving Day one of the most important days in a U.S. citizens’ life. Today that person will contend with jammed traffic, or long airport queues, all in an effort to share turkey, pumpkin pie and smores. It’s an effort and its one of the few holidays that most Americans take.
Friday marks the beginning of the festive shopping season, Black Friday and Monday marks the big online shopping gala day. This is all being played out with the backdrop of a stock market where people are questioning their investments made and whether the Fed will hike again in December.
Intriguingly this holiday season is really shaping up as being rather important for the psyche heading into 2019. Robust sales will help ease October’s pain at a time when many expect further rate hikes.
For the record, the economy is not doing too badly by the Fed’s measures. Inflation is benign, the economy is growing and the Fed has some concerns about wage inflation. The neutral level is increasingly looking like being in the 2.5%-3.0% range. The market has priced in 38bp of hikes however the outlier is if wages do rise and then the Fed has to push through to 3.25% to 3.5%.
Today, however, has all been about oil and tech. Both have had solid rebounds. However, the rebound may be short-lived. The same problems that caused the selloff persist. Today was more about squaring ahead of a long weekend, profit taking and hoping the Fed won’t tighten in a couple of weeks.
And here’s hoping for strong sales because if Friday or Monday don’t provide the sales boost the stock market is looking for then many will question the strength of the economy and valuations where they currently stand.
The year 2019 won’t provide another boost such as the tax cuts provided in 2018. And the problems remain, a widening budget deficit, corporates misspending their tax dividend and a possible slowing of global growth.
For stocks, there was a big fall but equally so a chance to recover some of that lost ground. Apple dropped 8.2% putting it on pace for the worst fall since 2016. Netflix is down 7%and Nvidia is down 12%. Nvidia is down because as bitcoin falls there are fewer people mining bitcoin and hence the demand for computer chips fall.
On the day the Russell 2000 rose 2%, the S&P 500 clawed back some and oil retraced back to $54 a barrel. Volume was light and down about 20% on normal trading volumes.
The real news came out of MNI and they reported that the Fed was considering ending its cycle of hiking as early as spring. That could have set some buying in motion. Durable goods fell and filings for unemployment benefits rose and this data gives some plausibility to the report.
The problems over trade will not go away quickly, however. Trump will meet Xi Peng at the end of the month in Argentina so there is a possible chance. However, the signals are very different especially as Pence’s recent attack on China’s trade behaviour raised more than a few eyebrows.
Bonds were mixed on the day. Data stimulated the bonds into a small rally. However, the messages are mixed. The TIPS auction went at a yield of 1.109% which is the highest yield for this maturity since January 2011. Interestingly the ratio was 2.59 which was the strongest read since January. Traders are certainly betting that there is yet another twist in the inflation story.
Certainly, the global growth story is changing. The OECD in its estimates for global growth sees growth slowing in 2019 from 3.7% to 3.5%. That’s a substantial move. Rising rates, a strong dollar, and trade tariff wars are just some of the factors that are leading to a slowdown in their estimates.
Theresa May is off to Brussels this weekend to seal the Brexit deal. May is banking that business wants clarity and by agreeing to something business then has clarity and can then commence making some decisions about their businesses. There are only 4 months left before the Brexit divorce occurs. Ireland remains a sticking point and fishing is another issue.
On other matters, Goldman Sachs is in the firing line for a lawsuit in relation to the 1MDB fiasco. The Abu Dhabi sovereign –wealth fund believes that Goldman facilitated bribes that enabled billions of dollars to be defrauded from the Malaysian Fund. This debacle is a black eye for Goldman and threatens to undermine its wealth business especially in the Middle East.
For grain farmers, Trump’s tariffs are causing more than a few problems. Grain is now being left to rot in the fields as storage costs soar. The problem is that now they cannot sell grain to the Chinese there are no other buyers stepping in to fill the void. China typically takes 60% of U.S. supplied soybeans worth $12 bio. Little has found its way there.
The U.S. Government rolled out an aid programme of $12 bio but has only paid out $837.8 mio. The Grain Elevators are doing well as fees have increased 30%-40% for those who have stored grain. Dockage fees have increased threefold.
Equities: The S&P500 rose 0.8% and the Dow was flat. The Vix closed at 20.7 while the Stoxx rose 1.3%.
Currencies: The Bloomberg Dollar Index gained 0.5%, the euro fell 0.8%, and the yen fell 0.1%.
Bonds: The ten-year closed around at 3.063%. The 2-year closed at 2.816% and the 30-year closed at 3.315%. The ten-year bund closed at 0.374% and the OAT closed at 0.766%. The U.S. curve closed on the day with the following closes 2/10 at 24.7 bp, 2/30 at 49.9 bp and the 10/30 closed at 25 bp. The U.S. 5-year closed at 2.892%.
Commodities: WTI rose 1.93% natural gas was down 1.24% and gold was steady. Comex copper rose 0.76% (Dec Contract).
Bitcoin is trading around $4,408.
Aussie Market Today.
Today may see a little drift of a rally but don’t get caught by the rally if there is one. It’s more likely some bottom fishing and some squaring of trade positions. The U.S. is away pretty much until Monday so there won’t be a lot of direction unless we hear via twitter the world order has changed. Be wary and be quick and nimble.
Bonds were steady into the close. The big news was some weak to sluggish data and the possibility the Fed may only tighten once more. This should appeal to the bond bulls and we could see a rally. With the U.S. out until Monday, any rally may be muted. The real direction starts again next week. The Aussie dollar rallied on a weaker dollar.