Market Talk – December 9, 2019

Posted Dec 9, 2019 by Martin Armstrong |

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ASIA:

Export figures were released from China this weekend and show that the situation between the two largest economies is getting worse. The exports to the US showed a twelfth consecutive decline. A further round of Chinese tariffs set by the US is also expected to be set by the 15th of December, further adding to the global economic woes.

The Chinese government has ordered all state officials to remove any “foreign tech” from their offices as global tensions rise, as with similar worries formed from using Huawei with 5G development. China has also taken a similar stance and is taking precautions over any “back doors” which could send information to foreign governments. It is unclear as to the timeline and how they will replace Microsoft as an operating system.

Prime Minister Narendra Modi’s party, the Bhartiya Janata Party (BJP), won their re-election bid this year. Modi remains popular in India and among investors. But his second go-round has been much less interesting to Wall Street. India is underperforming in the emerging markets by over 700 basis points. To make matters worse, the Sensex is trading at multiples higher than the S&P 500. For comparison, the Sensex is trading at 28 times earnings, and the S&P 500 is trading at 20.9 times. “We are underweight India because it’s just too expensive and the growth isn’t there,” says Tom Wilson, head of emerging markets equity for Schroders in London.

India is part of the middle-class consumer growth story among emerging market money managers. It’s what everybody likes about it. Indexes heavily weighted to banks and industrial firms risk losing out on the consumer stocks that have been pushing India’s earnings multiples higher than the competition. Consumer confidence in India is at its lowest level since 2014.

The major Asian stock markets had a mixed day today:

Shanghai increased 2.46 points or 0.08% to 2,914.48
Kospi increased 6.80 points or 0.33% to 2,088.65
ASX 200 increased 23.00 points or 0.34% to 6,730.00
NIKKEI 225 increased 76.30 points or 0.33% to 23,430.70
Hang Seng decreased 3.64 points or -0.01% to 26,494.73
SENSEX increased 42.28 points or -0.10% to 40,487.43

The major Asian currency markets had a mixed day today:

AUDUSD decreased 0.0009 or 0.14% to 0.6832
NZDUSD decreased 0.0011 or 0.17% to 0.6554
USDJPY increased 0.0380 or 0.03% to 108.6180
USDCNY increased 0.0112 or 0.16% to 7.0344

Precious Metals:

Gold decreased 0.04 USD/t oz. or -0.00% to 1,459.16
Silver increased 0.0477 USD/t. oz or 0.29%% to 16.6266

Some economic news from last night:

Japan:

Bank Lending (YoY) (Nov) increased from 2.0% to 2.1%

Current Account n.s.a. (Oct) increased from 1.613T to 1.817T

GDP (QoQ) (Q3) increased from 0.1% to 0.4%

GDP (YoY) (Q3) increased from 0.2% to 1.8%

GDP Capital Expenditure (QoQ) (Q3) increased from 0.9% to 1.8%

GDP External Demand (QoQ) (Q3) remain the same at -0.2%

GDP Price Index (YoY) remain the same at 0.6%

GDP Private Consumption (QoQ) (Q3) increased from 0.4% to 0.5%

New Zealand:

Manufacturing Sales Volume (QoQ) (Q3) increased from -2.7% to -0.3%

Some economic news from today:

Singapore:

Foreign Reserves USD (MoM) (Nov) decreased from 276.8B to 276.0B

Japan:

Economy Watchers Current Index (Nov) increased from 36.7 to 39.4

EUROPE/EMEA:

According to reports from the NATO summit, it seems as if Europe advised by the US will limit its use of Huawei in 5G development. The EU came out with a statement that it will take a comprehensive and risk-based approach to 5G networks.

With days away from the UK elections, the latest polls suggest that current PM Boris Johnson is on course to win a majority. The only outside chance would be if Lib-Dems and Labour were to somehow coordinate votes against him in an attempt to detail the Brexit plans. Labour Leader Jeremy Corbyn has promised UK voters that he will nationalize UK utilities within 100 days, reduce the workweek to 32 hours, give 10% of shares in large companies to workers, and pause the retirement age at 66 in an attempt to try and persuade voters to vote for him this coming Thursday.

The US has pointed their finger at Iran after Iraqi-US bases were hit by sophisticated rockets. The latest of the rocket attacks took place today. Meanwhile, the country has been hit by protests over the past few weeks. Iranian President Rouhani announced that he received a 5 billion dollar loan from Russia, and has increased the yearly budget by 10% in order to resist the current US sanctions. “We know that under the situation of sanctions and pressure, people are in hardship. We know people’s purchasing power has declined,” Rouhani said.

The major Europe stock markets had a negative day today:

CAC 40 decreased 34.66 points or -0.59% to 5,837.25
FTSE 100 decreased 5.76 points, or -0.08% to 7,233.90
DAX 30 decreased 60.97 points or -0.46% to 13,105.61

The major Europe currency markets had a mixed day today:

EURUSD increased 0.0004 or 0.03% to 1.1065
GBPUSD increased 0.00151 or 0.11% to 1.31491
USDCHF decreased 0.0022 or 0.22% to 0.9879

Some economic news from Europe today:

Germany:

German Current Account Balance n.s.a (Oct) decreased from 24.9B to 22.7B

German Exports (MoM) (Oct) decreased from 1.5% to 1.2%

German Imports (MoM) (Oct) decreased from 1.2% to 0.0%

German Trade Balance (Oct) increased from 19.2B to 20.6B

Swiss:

Unemployment Rate n.s.a. (Nov) increased from 2.2% to 2.3%

Unemployment Rate s.a. (Nov) remain the same at 2.3%

Euro Zone:

Sentix Investor Confidence (Dec) increased from -4.5 to 0.7

US/AMERICAS:

The US government collected $7.2 billion in tariffs this October, accounting for a $1 billion year-over-year increase. This amounts to the largest jump in tariff collections in recent history. The revenue, naturally, is largely due to the tariffs placed on China. However, it is not all profit. Imports continue to outpace exports as manufacturing slows. The Federal Reserve recently admitted that companies have been passing the additional costs along to consumers. Additionally, the US government implemented a $28 billion bailout program for farmers hurt by the trade war, and it is largely expected that the government will continue to supplement lost income as the trade war continues.

Mexican President Andres Manuel Lopez Obrador is urging US House Speak Nancy Pelosi to pass the U.S.-Mexico-Canada Agreement (USMCA) deal. President Trump signed the deal in November, but House Democrats have yet to agree on changes to the proposals. Speaker Pelosi previously commented that she did not want the USMCA to be a second NAFTA deal. President Trump told reporters this Monday that he believes they are close on reaching a deal.

Amazon issued a statement this Monday accusing President Trump of misusing his position to award a well-paid contract to a competitor. The Pentagon considered awarding a $10 billion contract to Amazon’s entity AWS for use of their cloud-based system. However, the contract was awarded to Microsoft. Amazon CEO and founder Jeff Bezos has had issues with President Trump largely stemming from Trump’s accusations that Bezos’ company is underpaying taxes. “The question is whether the President of the United States should be allowed to use the budget of DoD to pursue his own personal and political ends,” the formal complaint said.

Economist and former Chairman of the Federal Reserve Paul Volcker passed away over the weekend at the age of 92. Volcker understood the importance of cycles in relation to the economy. Published in 1978, “The Rediscovery of the Business Cycle” reintroduced the concept of cycles and their effect on the economy to the Western world.

“The Rediscovery of the Business Cycle – is a sign of the times. Not much more than a decade ago, in what now seems a more innocent age, the ‘New Economics’ had become orthodoxy. Its basic tenet, repeated in similar words in speech after speech, in article after article, was described by one of its leaders as ‘the conviction that business cycles were not inevitable, that government policy could and should keep the economy close to a path of steady real growth at a constant target rate of unemployment.’

Of course, some minor fluctuations in economic activity were not ruled out. But the impression was conveyed that they were more the consequence of misguided political judgments, of practical men beguiled by the mythology of the old orthodoxy of balanced budgets, and of occasional errors in forecasting than of deficiency in our basic knowledge of how the economy worked, or in the adequacy of the tools of policy. The avant-garde of the profession began to look elsewhere – to problems of welfare economics and income distribution – for new challenges.

Of course, the handling of the economic consequences of the Vietnam War was an obvious blot on the record – but that, after all, reflected more political than economic judgments. By the early 1970s, the persistence of inflationary pressures, even in the face of mild recession, began to flash some danger signals; the responses of the economy to the twisting of the dials of monetary and fiscal policy no longer seemed quite so predictable. But it was not until the events of 1974 and 1975, when a recession sprung on an unsuspecting world with an intensity unmatched in the post-World War II period, that the lessons of the ‘New Economics’ were seriously challenged.”

– “The Rediscovery of the Business Cycle” by Paul Volcker

US Market Closings:

Dow declined 105.46 points or -0.38% to 27,909.60
S&P 500 declined 9.95 points or -0.32% to 3,135.96
Nasdaq declined 34.70 points or -0.40% to 8,621.83
Russell 2000 declined 4.22 points or -0.26% to 1,629.62

Canada Market Closings:

TSX Composite declined 46.12 points or -0.27% to 16,950.85
TSX 60 declined 3.67 points or 0.35% to 1,011.42

Brazil Market Closing:

Bovespa declined 148.52 points or -0.13% to 110,977.23

ENERGY:

Weak economic news from China has pushed the price of Crude down today; ongoing confusion with the direction of the US-China trade war is not helping the case of a high price per barrel.

The oil markets had a mixed day today:

Crude Oil decreased 0.1267 USD/BBL or -0.21% to 58.8976
Brent decreased 0.1657 USD/BBL or -0.26% to 64.2504
Natural gas decreased 0.1027 USD/MMBtu or -4.37% to 2.2445
Gasoline increased 0.0073USD/GAL or 0.44% to 1.6509
Heating oil decreased 0.0072 USD/GAL or -0.37% to 1.9398
Top commodity gainers: Steel(10.83%),Orange Juice(2.10%),Coffee(1.90%), and Sugar(1.52%)
Top commodity losers: Oat(-5.21%), Natural Gas(-4.37%), Lean Hogs (-2.79%), and Lumber(-1.75%)

The above data was collected around 4:05 pm EST on Monday.

BONDS:

Japan -0.00%(+1bp), US 2’s 1.63% (+1bps), US 10’s 1.83%(+1bps)US 30’s 2.27%(-1bps), Bunds -0.31% (-2bp), France -0.01% (-2bp), Italy 1.40% (-6bp), Turkey 12.23% (+19bp), Greece 1.43% (-62bp), Portugal 0.40% (-3bp), Spain 0.46% (-5bp) and UK Gilts 0.77% (-0bp).