- Chinese Vice Premier Liu will reportedly arrive in the U.S. on Saturday to sign US/Chinese trade deal
- U.S. consumer confidence expected to show a solid increase
- U.S. home prices expected to continue their long advance
Chinese Vice Premier Liu will reportedly arrive in the U.S. on Saturday to sign US/Chinese trade deal — The China Morning Post on Monday reported that Chinese Vice Premier Liu will travel to Washington on Saturday and will stay in town until the middle of next week in order to sign the US/Chinese phase-one trade deal. The report did not say exactly what day the agreement will be signed. The report said that the U.S. extended the invitation to Mr. Liu and that China accepted.
There was no official confirmation from either the U.S. and China about the Liu trip or a signing date for the trade deal. However, White House trade advisor Navarro on Monday said that the phase-one trade deal was “in the bag” and would be signed in the next week or so.
The markets will be pleased when the phase-one trade agreement is signed since that would at least eliminate the possibility of any last-minute glitches on how the agreement should be interpreted.
Still, the markets are waiting to see the details of the agreement, which will be released to the public when the agreement is signed. The U.S. has claimed that China agreed to buy $40 billion of U.S. ag products annually in 2020 and 2021, and President Trump has claimed the purchase obligation is even higher at $50 billion. China has yet to confirm any exact figures on agriculture purchases. Also, there has been no public information about how much of each commodity China has agreed to buy.
China is expected to struggle to buy $40 billion of U.S. ag products in 2020 since that is far higher than the pre-tariff level of $24 billion seen in 2017 and the record high of $29 billion seen in 2013. If Chinese ag purchases do not meet President Trump’s expectations, then Mr. Trump might quickly impose new tariffs on China.
After the phase-one agreement is signed, the markets will be looking forward to a timetable for the phase-two talks. The phase-two talks are likely to be difficult as China drags its feet to see if President Trump wins reelection in November 2020.
As part of the phase-one trade deal, the markets will also be watching for any sign of reduced U.S. pressure on Chinese tech companies such as Huawei.
U.S. consumer confidence expected to show a solid increase — The consensus is for today’s Dec Conference Board U.S. consumer confidence index to show a +3.0 point increase to 128.5, more than reversing Nov’s -0.6 point decline to 125.5.
The consumer confidence index has been on the rise this year but remains in the lower half of the range seen over the past two years. U.S. consumer confidence is generally strong as the U.S. economy keeps chugging along and supports the very strong labor market. Meanwhile, the new record highs in the U.S. stock market are boosting confidence in the economic outlook and the value of consumer 401k accounts. Moreover, home prices continue to climb, thus boosting homeowner wealth.
On the negative side, there is concern about trade tensions, tariffs, and the manufacturing sector. In addition, the political strife in Washington is causing uncertainty.
The U.S. economy continues to depend heavily on consumer spending as its main pillar of support. In Q3, consumer spending contributed 2.12 percentage points to the Q3 GDP growth rate of +2.1%. By contrast, investment subtracted -0.14 points and net exports subtracted -0.14 points.
U.S. home prices expected to continue their long advance — Today’s U.S. home price indexes are expected to continue their long march higher. The consensus is for today’s Oct FHFA house price index to show an increase of +0.4% m/m, adding to Sep’s +0.6% increase. The consensus is for today’s Oct S&P CoreLogic composite-20 home price index to show an increase of +0.3% m/m and +2.1% y/y, close to Sep’s report of +0.4% m/m and +2.1% y/y.
The FHFA index, which is the broadest U.S. home price index, has seen strength over the past year and was up sharply by +5.1% y/y in September. Meanwhile, the Composite-20 index of homes in metropolitan areas was not quite as strong with a year-on-year increase of +2.1% y/y in September.
U.S. home prices continue to move higher due to strong demand and tight supplies. U.S. existing home sales in November fell by -1.7% to 5.35 million units, but were only 5% below the 12-year high of 5.64 million units posted in Nov 2017. Meanwhile, the supply of existing homes on the market in November was tight at 3.6 months, which was far below the long-term average of 6.7 months and the 7-8 month level that the National Association of Realtors says is consistent with stable home prices.
The sale of homes this year has surged mainly because of sharply lower mortgage rates. The 30-year mortgage rate is currently at 3.74%, which is down by a massive -120 bp from last November’s 8-3/4 year high of 4.94% and is only +25 bp above Sep’s 3-1/4 year low of 3.49%.
