- Markets this week face a busy U.S. economic calendar
- Markets await signing date for US/China trade deal
- Market’s Washington reprieve ends next week
- Chicago PMI expected to improve
- China PMI expected to edge lower
Markets this week face a busy U.S. economic calendar — This week’s U.S. economic calendar is fairly busy despite Wednesday’s New Year’s holiday. Today brings the Chicago PMI and Nov pending home sales report (expected +1.3% m/m). Tuesday brings the FHFA and CoreLogic Oct home price reports and the Conference Board’s Dec U.S. consumer confidence index (expected +2.7). Friday brings the Dec ISM manufacturing index (expected +0.9 to 49.0) and the minutes of the Dec 10-11 FOMC meeting.
Markets await signing date for US/China trade deal — The markets this week will be waiting for any news of progress on finalizing the US/China trade deal and setting a date for the formal signing ceremony. Previously, the two sides said the agreement would be signed by USTR Lighthizer and Chinese Vice Premier Liu. President Trump last week then surprised the markets by saying that he and President Xi would meet to sign the agreement, although China has yet to confirm that. The signing of the trade agreement could be delayed for a matter of weeks if a US/China summit needs to first be arranged.
Since the trade deal was announced on December 13, the text of the agreement has been under legal and technical review and translation into Chinese. There have been no reports as yet of any glitches such as those that popped up after previous preliminary agreements.
After the phase-one agreement is signed, the markets will be looking forward to a timetable for the phase-two talks. The markets in the coming weeks will also be watching to see if China lives up President Trump’s expectations for increased purchases of U.S. ag products. The markets will also be watching for any sign of reduced U.S. pressure on Chinese tech companies such as Huawei.
Market’s Washington reprieve ends next week — The markets this week will have a continued reprieve from Washington during the holiday recess. However, Congress returns to session early next week.
The first order of business for Congress next week will be for House Speaker Pelosi and Senate Minority Leader Schumer to negotiate a deal with Senate Majority Leader McConnell for Senate rules to govern President Trump’s trial in the Senate. House Speaker Pelosi is holding back on transmitting the articles of impeachment until she is satisfied with the Senate rules. Senate Majority Leader McConnell wants to get the trial over with as soon as possible but cannot schedule the trial until the Senate receives the articles of impeachment. At this point, it appears that the trial may begin in mid-January and perhaps last into February.
Also in Washington, the Senate Finance Committee will hold a markup of the USMCA bill on January 7, according to Chairman Grassley’s office. However, the full Senate is not expected to take up the USMCA bill until after President Trump’s trial. The markets will be relieved when the USMCA is approved by Congress since that will reduce trade uncertainty and could lead to a burst of new investment once the new North American trade rules have been locked in.
Chicago PMI expected to improve — The market consensus is for today’s Dec Chicago PMI to show a +1.7 point increase to 48.0, adding to November’s +3.1 point recovery to 46.3. The Chicago PMI fell to a 4-year low of 32.2 in October but then rebounded higher by +3.1 points to 46.3 in November. Nevertheless, November’s index level of 46.3 was below the expansion-contraction level of 50.0, illustrating that executives in the Chicago-area manufacturing sector are still pessimistic about the area’s outlook.
At the national level, the markets are looking ahead to Friday’s Dec ISM manufacturing index, which is expected to show a +0.9 point increase to 49.0 after Nov’s -0.2 point decline to 48.1. November’s index level of 48.1 was only 0.3 points above September’s 10-year low of 47.8, illustrating the weak state of confidence in the U.S. manufacturing sector.
There are hopes for some improvement in U.S. manufacturing confidence now that the U.S. and China have reached a tariff truce with the phase-one trade deal. However, the coast is certainly not clear for the global manufacturing sector. The phase-one trade deal involves only a partial rollback of existing tariffs and the phase-two trade talks will be difficult and could lead to new U.S. penalties on China. With the continued trade uncertainty, global manufacturing executives are likely to remain in a defensive stance.
China PMI expected to edge lower — The consensus is for Monday night’s (ET) Chinese national PMI reports to show small declines but remain above the expansion-contraction level of 50.0. China’s Dec manufacturing PMI is expected to edge lower by -0.1 points to 50.1. The Nov increase of +0.3 to 50.2 put the index back above the 50.0 level for the first time since April.
Meanwhile, tonight’s China Dec non-manufacturing PMI is expected to show a -0.2 point decline to 54.2, giving back a small part of Nov’s +1.6 point increase to 54.4. The non-manufacturing PMI is expected to remain comfortably above the expansion-contraction level of 50.0, illustrating that executives in China’s service sectors continue to be generally optimistic.
China’s economy appears to be stabilizing after the slowdown in 2018 caused by trade tensions and by underlying problems such as high debt levels and excess capacity in many industries. The consensus is for China’s GDP growth to edge lower to +5.9% in 2020 from +6.1% in 2019, which is substantially lower than the pre-tariff GDP growth rate of +6.9% seen in 2017.
