Friday’s job report was a winner, blowing the roof off the house by every measure and signaling continued strength in the US economy. It put to bed any idea that the supposed global weakening was affecting our economy. The report, which was expected to show 187k new jobs created in November, actually showed 266k new jobs created. Unemployment which stood at 3.6% fell to 3.5%, a 50-year low! This news, coupled with “expected” ongoing support by consumers, which is crucial to the US economy, helped to stoke the fire.
Stocks soared! The Dow surging by 1.22% or 337 points, the S&P added 28 points for 0.9%, the Nasdaq rose 86 points or 1%, while the Russell (a US specific index of small and mid-cap names) rose 19 points or 1.18%
While “risk” assets had a great day, “safe haven assets” like treasuries, gold and utilities fell. Remember, that as treasury prices fall, yields rise and Friday’s action sent the 10-year yield to 1.84% from Thursday’s 1.795%. Gold got clocked falling 1.2% or $18 to end the day at $1464/oz, substantially below short and intermediate term trend line support. As long as trade talks continue, we would expect to see Gold test a bit lower. Utilities, another “safe haven” play also fell on Friday as money moved out of “boring” and into “sexy.” The Energy ETF (XLE), enjoying the company of buyers, rose nearly 2% on the OPEC news, while Industrials (XLI) and Technology (XLK) rose 1.2% and 1.1% respectively.
OIL, which does not really respond to the NFP report with any type of regularity surged by 1.04%. Why? Because OPEC and OPEC + members voted to cut production by an additional 500k barrel per day through March of 2020. This brings the daily production cuts from 1.2 million barrels per day to 1.7 million barrels per day. This, hopefully (in their minds) will force the price of oil higher as more and more supply comes off the market (assuming that no one cheats). Recall that so many analysts have argued that the global slowdown was causing oil to fall, while many others (myself included) have argued all along that it is a supply issue that has kept oil prices lower. Economics 101 – Demand & Supply – How Markets Work! When the news first hit the tape, oil spiked to nearly $60/barrel before settling the day up 1.1% or 64 cents at $59.07/barrel. We are now clearly in a new mindset and oil has most likely broken out of the $50/$55 range (due to the production cuts). It’s now looking at $57/$61 range. In fact, last Tuesday oil broke thru its final trend line resistance at $57.06 on expected additional cuts, and is now using that same trendline as support.
OPEC, which usually meets every 6 months, will now meet in three more months (March 2020) to determine what this move meant to the oil industry and oil prices. OPEC would love to see oil prices in the $70/$80 range while some members yearn for $100 barrel once again. US producers need oil to break out of the $50s and move into the $60s if they are going to save themselves from the crushing debt load that many of them are carrying. This morning oil is retracing the surge higher and is down 0.9% as the production cut news is digested and the latest China eco data reported that exports of goods and services fell for the fourth straight month, once again adding angst to the ‘demand’ argument.
Speaking of China, over the weekend, they reported that exports fell by 1.1% (fourth straight decline) versus the expected increase of 1%. Exports to the US fell by 23% within that report. Imports rose by 0.3% vs the expected decrease of 1.8%. This latest report providing Xi Xi with a very good reason to come to the table and negotiate in good faith, and try to get a Phase One deal all tied up by this weekend. Odds are 50/50 that we get any kind of a deal before Dec. 15, when Donny has said he will impose additional tariffs on that country. On Friday, Larry Kudlow told us that they are “haggling” over agriculture purchases and once that is cleared up, a deal is all but signed. This brings up the latest conversation: will Donny “delay” the imposition of tariffs IF it looks like they are really moving ahead? Because the delay conversation is catching fire and if everyone wants to play nice in the sandbox, then everyone has to give a little. The real question is: Does Donny want a deal now or not? Will he squeeze Xi Xi’s (fill in the blank) a bit harder just to prove his point? We are about to find out.
Trading in Asia was muted and the markets ended mixed – Japan +0.33%, Hong Kong flat, China -0.18%, and ASX +0.34%.
In Europe, markets are off to a weaker start. The China economic news and US/China trade are front and center in terms of the global economy. In terms of European news, we will get an announcement on Thursday from the ECB under the new leadership of Christine Legarde, What will the ECB be doing in 2020? Further easing? Staying neutral? In the UK, the Brits are taking to the polls on Thursday to elect a Prime Minister. Current PM BoJo is expected to win and over the weekend and pledged to “reduce immigration” in a new “transformative BREXIT.” A win by BoJo almost assures a BREXIT will happen by January 31st. Over in the City of Lights (Paris). Finance Minister Bruno Le Maire is appealing to the WTO (World Trade Org) to address Trumps threat of tariffs on French goods as France prepares to tax American internet giants like Google, Amazon, FB etc. And in Germany, the latest import/export economic data showed a surprising rise of 1.2% despite all the talk of a global slowdown.
FTSE -0.11%, CAC 40 -0.18%, DAX -0.03%, EUROSTOXX – 0.10%, SPAIN +0.18% and ITALY -0.24%.
US futures are a bit weaker, no surprise after Friday’s surge, with the Dow futures off by 16 points, the S&Ps lower by 3, the Nasdaq off by 6, and the Russell lower by 4 points. In addition to TRADE, this week we will also hear from the FED, and while there is not change expected at all like the ECB we would expect to hear about what the future looks like. Recall, the market is expecting at least one rate cut next year (possibly two), so investors/traders/algos will be listening intently to hear what he says.
Trade talks will be very important this week. December 15th is Sunday. So there are now only six days before new tariffs are imposed on China. What is happening? Are they talking? Will we get an 11th hour deal or not? Will Donny play nice? Will Xi Xi give in? They have to figure out a way to “save face” for both sides so that it looks like no one caved. Stay tuned.
Friday’s action sent the S&P back to the 2019 highs, closing at 3145, just below the 3153 record on November 27th. The risk is to the downside right now. It all depends on what we hear on trade. A phase one deal is all priced in. The risk is that a deal does not happen this week. If it doesn’t and Trump imposes tariffs, look for the market to take a 3 – 5% hit. If it doesn’t happen but he delays the tariffs because they are working on it, then expect the market to churn, maybe lose 1 – 3% as profit taking will be the story.
Take good care –
#5 – Atlantic Codfish
For this you need – the fresh caught codfish, butter, white wine, s&p and parsley.
In a large baking dish – place the codfish – add in the melted butter, s&p and a splash (or two) of a dry white wine. Do not use a chardonnay.
Preheat the oven to 400 degrees and place the fish in the oven for no more than 15 minutes max! (depending on how much fish you have in the dish) Remove and place on a serving dish – spooning the butter and wine sauce over the fish – adding a few new sprigs of parsley for color. Simple to make and so good for you.