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  • Weekly U.S. market focus
  • European focus on Brexit, Italian budget, and German politics
  • Asian market focus
  • US/China reach trade ceasefire although worries continue about possible auto tariffs and NAFTA 2.0
  • Russian/Saudi leaders agree on 2019 production cut
  • U.S. ISM manufacturing index expected to show third consecutive monthly drop
 

Weekly U.S. market focus — The U.S. markets this week will focus on (1) relief over Saturday’s US/China agreement for a 3-month ceasefire on tariffs, (2) Fed Chair Powell’s testimony to the Joint Economic Committee of Congress, although that testimony will likely be postponed since the federal government will be closed on Wednesday for a day of mourning for former President George H.W. Bush, (3) the prospects for partial U.S. government shutdown this Friday night when the continuing resolution expires, although President Trump said over the weekend that he would be open to a short-term extension to avoid conflicting with this week’s events for former President Bush, (4) oil prices ahead of the Thursday/Friday OPEC+ meetings, and (5) Friday’s Nov payroll report (expected +200,000).

The U.S. financial markets and the federal government will be closed on Wednesday for a day of mourning for former President George H.W. Bush.  The NYSE and the other U.S. stock exchanges, the stock index futures markets, and the cash fixed-income markets will be closed on Wednesday.

 

 

European focus on Brexit, Italian budget, and German politics — The European markets will carefully watch this week’s Brexit debate in the UK Parliament ahead of next Tuesday’s (Dec 11) vote on whether to approve the Brexit withdrawal agreement.  If Parliament votes down the Brexit withdrawal agreement, as expected, then Prime Minister May could try to renegotiate the agreement with the EU but political chaos could also ensue if Ms. May faces a Conservative Party leadership challenge or if there is a no confidence vote in Parliament that produces new elections.  BOE Governor Mark Carney on Tuesday will address the Treasury committee on the BOE’s forecast for significant fall-out for the UK economy if there is a no-deal Brexit in March 2019.

German politics will be front and center this week as delegates from the CDU will meet on Thursday to elect a successor to Angela Merkel, who is stepping down now as party leader now and as Chancellor ahead of the next election.

The European markets will continue to follow the EU/Italian budget standoff as Italy has indicated some flexibility on reducing its proposed 2019 budget deficit of 2.4% of GDP.  The Italian Parliament this week is expected to debate the budget legislation.

Asian market focus — The Asian markets this week will focus on the US/Chinese trade ceasefire and whether Chinese stocks can show a sustained rally on the news.  Chinese economic reports this week include Tuesday night’s Caixin Chinese Nov services PMI (expected unchanged at 50.8 after Oct’s -2.3 decline), Thursday night’s Nov industrial production and retail sales reports, and Friday night’s Nov new home price report.

US/China reach trade ceasefire although worries continue about possible auto tariffs and NAFTA 2.0 — Presidents Trump and Xi at their meeting on Saturday agreed on trade negotiations and a 3-month tariff ceasefire.  The U.S. agreed not to raise its tariff to 25% from 10% on Jan 1 on $200 billion of Chinese goods, holding off on that move for at least 90 days.  Meanwhile, China agreed to purchase “a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial and other products from the U.S. to reduce the trade imbalance between our two countries.”  The negotiations will cover “structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.”

The ceasefire agreement was good news for the markets, which now have at least a 3-month reprieve.  However, President Trump could still issue new threats to slap new tariffs on China despite the ceasefire agreement if he does not think the negotiations are proceeding quickly enough.

The leaders of the U.S., Canada and Mexico on Friday signed the NAFTA 2.0 agreement, which was good news for the markets.  President Trump over the weekend then threatened to issue the official 6-month notice that is necessary for the U.S. to withdraw from the NAFTA 1.0 treaty as a means to pressure Congress into approving the NAFTA 2.0 treaty in early 2019.  However, Mr. Trump does not have the authority to withdraw from NAFTA 1.0 without legislation from Congress, which means his threat to cancel NAFTA 1.0 is of limited effect.

There could be fresh news this week about U.S. auto import tariffs as the markets await the Commerce Department’s report.  Europe is afraid that the Trump administration may slap tariffs on European autos even though the U.S. and EU are currently under a tariff ceasefire agreement while they conduct trade negotiations.

Russian/Saudi leaders agree on 2019 production cut — Russian President Putin and Saudi Crown Prince MBS over the weekend at the G-20 meeting agreed to extend the OPEC+ production cut agreement into 2019.  However, they said they would leave the size of the production cut up to the oil ministers at the Thursday/Friday OPEC+ meetings.  The market is expecting a production cut of at least 1 million bpd to offset the expected 2019 oil surplus.

U.S. ISM manufacturing index expected to show third consecutive monthly drop — The consensus is for today’s Nov ISM manufacturing index to show a -0.2 point decline to 57.5, adding to October’s fairly sharp drop of -2.1 to a 6-month low of 57.7.  The Oct new orders sub-index showed an even larger drop of -4.4 points to a 1-1/2 year low of 57.4.  Optimism in the U.S. manufacturing sector has been fading due to slower U.S. capital spending and slower economic growth overseas.

 

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