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4:00 p.m. ET: Stocks start December by succumbing to gravity
The first trading day of 2019’s final month started on a down note, with U.S. stocks tripped up by soft manufacturing data. Also undermining sentiment was President Donald Trump’s announcement that he would reimpose tariffs on Brazilian and Argentinian steel and aluminum, which stoked new fears about the same old trade war story, where the U.S. and China are still at odds over a mini-agreement.
Here’s where markets settled at the end of regular equity trading:
S&P 500 (^GSPC): -0.85%, or 26.79 points
Dow (^DJI): -0.94%, or 264.97 points
Nasdaq (^IXIC): -1.12%, or 97.48 points
10-year Treasury yield (^TNX): +4.8 bps to 1.826%
Gold (GC=F): -0.25% to $1,469.00 per ounce
3:55 p.m. ET: The donut hole in the consumer narrative
Despite the euphoria over early holiday shopping figures, Credit Suisse notices what “Knives Out” character Benoit Blanc might describe as a donut hole in the narrative of strong consumer spending:
Traditional brick-and-mortar retail is struggling, despite strong growth in consumer spending. Financial stress has eased after a wave of defaults in recent years, but employment and investment in the sector continue to contract.
The headwinds for retail are well-known and well-publicized, but, under the radar, the situation has become substantially worse in recent quarters.
Online sales have been gaining market share for years, and this divergence has accelerated markedly this year. Overall sales growth is solid, but real growth in brick and mortar retailers has been substantially slower.
Meanwhile, there are cyclical issues facing retailers as well. A tight labor market is boosting wages for low-income workers, and retail has been affected disproportionately. At the same time, consumer spending is set to moderate after several years of above-trend growth.
Financial market stress for retailers peaked several years ago, but the drag on economic data has likely only just begun. Retail makes up 12% of private employment (more than manufacturing) and 5-10% of nonresidential construction.
The firm added that retail’s woes are unlikely to create a recession, but will translate into moderate job and investment growth in 2020.
3:20 p.m. ET: Why Cyber Monday really began last Thursday
Web shopping is biting into the annual retail holiday better known as Black Friday. From Yahoo Finance’s Anjalee Khemlani:
Data released in the rush of post-Thanksgiving rush of retail buying highlighted the growing power of mobile applications and web-based sales. Payment and financial technology firm Fiserv said that brick and mortar sales rose 4.2% on Black Friday compared to 2018, with electronics, clothes and sporting goods reaping the benefits of store traffic.
Meanwhile, Adobe Analytics reported a 6% drop in brick-and-mortar sales — but noted a jaw-dropping 244% year-over-year surge for online retailers on Thanksgiving day. Consumers shelled out over $4 billion on that day alone, the firm noted, up 14.5% from 2018.
Even though the Monday after Thanksgiving is the official day for online sales, the phenomenon of mobile — combined with the point and click convenience of shopping from the comfort of your home, or work, or wherever — has changed the nature of the game.
2:50: The tariff Grinch could steal Christmas
Stocks got a dose of cold water on Monday after the Trump administration went after Brazil and Argentina with steel tariffs. Yet negotiations with China — and the potential punch of tariffs — loom large for the market.
“If the China tariffs go into effect, I think you could have something in the neighborhood of a 5% pullback,” Keith Lerner, chief market strategist at SunTrust Bank, told “The First Trade.”
Here’s the full rundown, via Yahoo Finance’s Alexis Christoforous
12:55 p.m. OPEC’s diminishing returns
Crude is emerging as Monday’s winner, up nearly 2% on the day ahead of a meeting of the oil-producing cartel known as OPEC, scheduled for later this week.
With the U.S. shale boom having shaken up the oil-producing league tables — and restructured the global energy order — the group wields far less influence now than it did in previous decades. Eurasia Group’s energy team writes:
At this week’s meeting, the group will probably decide to maintain its output cuts. Many of its producers do not want the price of Brent to fall much below USD 60 per barrel. With output outside OPEC surging but demand growth at or below 1% per year, the group has little choice but to continue its restraint unless it is willing to accept a steep price drop.
OPEC’s predicament is most visible in the US, which is on its way to becoming a net exporter of crude oil and petroleum products. Until only a few years ago, the country was by far the world’s biggest importer of oil—an expensive and geopolitically risky role now filled by China.
Brent crude (CL=F) last traded above $56 per barrel, off session highs but up nearly $1 from Friday’s close.
12:20 p.m. ET: Stocks hover near day’s lows after weak data
With no new impetus to push Wall Street higher, traders are now testing the downside as major indexes hunker near session troughs. Soft manufacturing and construction data weigh, as does President Donald Trump’s latest tariffs on Brazilian and Argentinian steel.
11:07 a.m. Don’t stress about the weak ISM number just yet
High Frequency Economics’ chief U.S. economist, Rubeela Farooqi, notes that the ISM’s sub-50 index reading was its fourth straight. Yet noting that 48.1 is weak but not “recession-like”, she offered the following assessment:
The overall manufacturing index typically falls to the low 40s
in recessions, and so far at least, the less-export-oriented
non-manufacturing parts of the economy have remained reasonably
solid. We expect the upcoming non-manufacturing ISM index to
remain comfortably over 50.
Capital Economics also thinks investors shouldn’t break out the worry beads just yet, saying “there is mounting evidence to suggest that the downturn will soon bottom out, with the alternative national Markit manufacturing PMI rising over the past few months.”
11:00 a.m. Doubleline: What bond yields tell us about the economy
Investment grade bond spreads have been consistent with an “OK” economy, according to veteran portfolio manager Monica Erickson. Accommodative monetary policy from global central banks “really sparked a rally” in credit, she told Yahoo Finance’s Julia LaRoche, but high-grade returns will be “difficult to replicate” next year.
Highlight: @DlineCap veteran portfolio manager Monica Erickson to @JuliaLaRoche on 2020: "We're starting now at a point where spreads are much tighter than they were 12 months ago. ... However, there are some tailwinds that we still continue to have." Full interview: pic.twitter.com/oDlZGO3eJe
— Yahoo Finance (@YahooFinance) December 2, 2019
10:20 a.m. ET: Spend, spend, spend
“Cyber Monday” has already seen consumers spend nearly half a billion dollars as of 9 a.m. Eastern, according to Adobe Analytics data.
The online retail sales bonanza that serves as a post-script to Black Friday has seen consumers clicking with intensity, Adobe found:
...Cyber Monday has already reached $473 million in online sales (as of 9:00 am Eastern). We expect it to remain the largest online shopping day in the U.S., on track to hit $9.4 billion at 18.9% growth YoY. Later today, four “golden hours of retail” (10:00 pm – 2:00 am Eastern) will bring in a whopping 30% of the day’s revenue ($2.8 billion) as shoppers hit buy before deals run out; $11 million will be spent per minute during the peak hour (11:00 pm Eastern – midnight ET).
10:00 a.m. ET: ISM data shows manufacturing still soft
The Institute for Supply Management’s November index showed that manufacturing activity stayed at levels considered contractionary, amid soft inventories and new orders. The ISM’s index stood in contrast to Markit’s PMI index, which set a 7-month high. The reading came in at 48.1, below expectations and weaker than October’s reading of 48.3.
Markets hit session lows following the report, which also overlapped with underwhelming construction spending data.
10:00 a.m. ET: About that ‘Phase One’ trade deal...
There’s growing skepticism on Wall Street that a mini-agreement between the U.S. and China would accomplish what it sets out to do. In a research note this morning, Capital Economics thinks a “Phase One” deal will be reached, but it “would do little to boost global growth” — or resolve “fundamental differences between the two sides.”
The firm’s rather sober analysis includes the following:
...with Trump since ratifying legislation in support of protestors in Hong Kong and the Chinese authorities retaliating with sanctions against US human rights groups and a ban on military visits, things now seem more uncertain.
Our best guess is that a deal will still be reached in the next few weeks. It might not come before 15th December, when the US is set to impose tariffs on $156bn of consumer goods. But another delay seems possible...
But Chinese state media reported yesterday that the rollback would be a necessary precondition for a deal, in which it might buy unspecified quantities of imports from the US as a “special treat”. Work to protect intellectual property and [liberalize] capital markets would continue, but as part of business as usual and not a quid pro quo. We assume that the outcome would lie somewhere in between, with a rollback of tariffs in return for a pledge of large imports and possibly vague commitments in other areas from China.
The effects on the global economy would be modest for several reasons. First, tariffs on trade between the US and China would still be far higher than before the war started. The average US tariff on imports from China has risen from 3% at the start of last year to 21%. A rollback of September’s tariffs would take it back to 18%. What’s more, any boost to Chinese exports would be limited by the fact that the renminbi would be stronger with a deal than it would have been without. We estimate that the trade war has so far knocked less than 1% off Chinese GDP and the proposed rollback would reverse only a small fraction of this.
Capital Economics also noted that the damage to the vast U.S. economy has been limited, but the substitution effect of American consumers shifting toward foreign goods from outside China would likely reverse.
Even if trade between the US and China picked up, this would be at the expense of other economies whose exports have recently been bought as substitutes. So the effect on global growth would be minimal. Similarly, if China bought more agricultural goods (most obviously soybeans) from the US, it would surely buy fewer from Brazil. And in any case, the sums proposed by President Trump seem totally unrealistic.
Substituting Chinese goods — or trying to find “alternatives” to the Middle Kingdom’s market, as Trump once demanded of U.S. companies — is a rather dicey and complicated affair that’s far easier said than executed, economists say.
9:45 a.m. ET: U.S. Manufacturing PMI sets 7-month high: Markit
What trade tensions? The U.S. manufacturing sector saw new orders and output jump to 10-month highs in November, according to Markit’s closely-tracked index. The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index (PMI) hit 52.6 during the month, up from 51.3 in October — its strongest showing since April.
The good news didn’t stop there. According to Markit’s analysis:
The rate of output growth accelerated further from July's recent low in November, with the pace of expansion reaching a ten-month high. Companies commonly linked the upturn in production to stronger client demand. New order volumes also increased at the fastest pace since January, reportedly buoyed by greater marketing activity and a reduction in hesitancy among customers in placing orders. Foreign client demand also picked up midway through the final quarter, with new export orders increasing at the quickest rate since June. The upturn was often attributed by firms to greater interest from key export partners. In line with stronger client demand, manufacturers expanded their workforce numbers, and at the fastest pace since March.
9:30 a.m. ET: Stock open higher, but gains capped by new steel tariffs
Wall Street opened higher to start the first trading session of December, as investors sprint toward the close of 2019 and were cheered by Chinese manufacturing data that beat expectations. Gains however, were capped by President Donald Trump’s announcement that he would reimpose tariffs on Brazilian and Argentinian steel and aluminum.
Here’s where major benchmarks began trading:
S&P 500 (^GSPC): +0.03%, or 0.82 points
Dow (^DJI): +0.13%, or 36.37 points
Nasdaq (^IXIC): -0.09%, or 7.52 points
Crude (^CL=F): +2% to $56.33
10-year Treasury yield (^TNX): flat to 1.847%
Gold (GC=F): -0.5% to $1,464.80 per ounce
Meanwhile, tense trade negotiations between the U.S. and China continue to be complicated by Hong Kong and existing tariffs. Investors are mindful of Beijing’s heated reaction to Trump’s decision to sign a bill supporting pro-democracy demonstrators in Hong Kong also supported stocks’ gains. Separately, the administration has sent mixed signals about whether it would lift existing tariffs ahead of a “Phase One” deal.