- China reportedly confirms Jan 15 signing date for US/China trade deal
- Markets remain on guard for Iranian retaliation
- Senate could pass USMCA this week due to delay in Trump trial
- U.S. ISM non-manufacturing index expected to remain comfortably above 50Â
- U.S. factory orders expected to remain weak
- U.S. trade deficit expected to narrow to a 2-year low
- 3-year T-note auction to yield near 1.56%
China reportedly confirms Jan 15 signing date for US/China trade deal — Bloomberg on Monday reported that top Chinese trade officials will be in Washington on Jan 13-15 to sign the US/Chinese phase-one trade deal on January 15. However, the Bloomberg report was not confirmed by the Chinese government, meaning the Jan 15 signing date is still not assured.
Bloomberg said that Chinese officials had previously expected to be in Washington this week to sign the deal, but that they delayed the trip after President Trump last week tweeted that he would sign the US/China phase-one trade deal on January 15 at a ceremony at the White House with high-level Chinese officials. The markets will be pleased when the phase-one trade agreement is signed since that would eliminate the possibility of any last-minute glitches on how the agreement should be interpreted or any last-minute bargaining demands.
The markets are also waiting to see the details of the agreement, which will not be released to the public until 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 that the purchase obligation is even higher at $50 billion. China has yet to confirm any exact figures on agriculture purchases. 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 in 2017 and the record high of $29 billion in 2013.
Markets remain on guard for Iranian retaliation — The markets remain on guard for any Iranian retaliation for the U.S. military’s targeted killing last week of Iranian General Soleimani, who was the second most powerful official in Iran. Iran presumably does not want to get into a full-fledged war with the U.S. or give the U.S. a pretext for bombing its key nuclear and military facilities. Iran may, therefore, bide its time and wait for the current crisis to die down, finally taking retaliatory action through proxies or terrorist cells that cannot be easily traced back to Tehran.
Senate could pass USMCA this week due to delay in Trump trial — The House Finance Committee today will mark up the USMCA bill, which shouldn’t take long because the bill cannot be amended under the fast-track trade rules. White House trade advisor Navarro said on Sunday that he expects the full Senate to approve the USMCA bill by this Friday. Senate Majority Leader McConnell may want to get the USMCA completed soon since there is no way to know how long President Trump’s impeachment trial might be delayed.
House Speaker Pelosi continues to refuse to transmit the articles of impeachment to the Senate until she is satisfied with the Senate trial rules. The Senate trial situation became more complicated on Monday after former National Security Advisor Bolton said he would be willing to testify in the Senate trial if subpoenaed by the Senate, which gave Democrats more of a basis for demanding that the Senate trial include witnesses. The markets will be pleased when the Senate approves the USMCA since that could release a burst of investment by companies once the long-term trade rules governing North American trade have been set.
U.S. ISM non-manufacturing index expected to remain comfortably above 50 — The consensus is for today’s Dec ISM non-manufacturing index to show a +0.6 point increase to 54.5, partially recovering from Nov’s -0.8 point dip to 53.9. The Nov index level of 53.9 was -6.9 points below the 14-year high of 60.8 posted back in Sep 2018, but the index remains comfortably above the expansion-contraction level of 50.0.
U.S. factory orders expected to remain weak — Today’s Nov factory orders report is expected to show a decline of -0.8% following Oct’s report of +0.3% and +0.2% ex-transportation. Factory orders ex-transportation were down by -1.2% y/y in October for the fifth consecutive year-on-year decline. There are hopes that the US/China phase-one trade deal might spark some optimism in the global manufacturing sector, but last Friday’s Dec U.S. ISM manufacturing index showed an unexpected -0.9 point decline to a new 10-year low of 47.2, remaining below the expansion-contraction level of 50.0 for the fifth consecutive month.
U.S. trade deficit expected to narrow to a 2-year low — The consensus is for today’s Nov U.S. trade deficit to narrow to -$43.7 billion from Oct’s -$47.2 billion. The expected deficit of -$43.7 billion would be a 2-year low and would be well below the 12-month trend average of -$52.8 billion. The trade deficit narrowed in October mainly because of a sharp -4.7% y/y drop in imports, which outweighed the -1.4% y/y drop in exports. U.S. trade flows continue to be distorted by tariffs and retaliatory tariffs.
3-year T-note auction to yield near 1.56% — The Treasury today will auction $38 billion of 3-year T-notes. The Treasury will then auction $24 billion of 10-year T-notes on Wednesday and $16 billion of 30-year T-bonds on Thursday in the second and final reopenings of the securities that the Treasury first sold in November. The benchmark 3-year T-note yield on Monday closed at 1.56%, which was near the lower end of the narrow range seen since October.
The 12-auction averages for the 3-year are as follows: 2.50 bid cover ratio, $59 million in non-competitive bids, 3.1 bp tail to the median yield, 27.9 bp tail to the low yield, and 61% taken at the high yield. The 3-year is the least popular Treasury coupon security among foreign investors and central banks. Indirect bidders, a proxy for foreign buyers, have taken an average of only 47.0% of the last twelve 3-year T-note auctions, which is far below the median of 60.8% for all recent Treasury coupon auctions.
