Dow went up 90 (but off AM highs), advancers slightly ahead of decliners & NAZ crawled up 7. The MLP index inched up pennies in the 227s & the REIT index added 3 to the 409s. Junk bond funds were little changed & Treasuries continued higher in price. Oil continued lower at 58 & gold rose 12 to 1556.
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Pres Trump signed a landmark trade agreement with China, heralding a period of detente in a trade war between the world's 2 largest economies fueled by decades of complaints that Beijing was manipulating its currency & stealing trade secrets from American firms. The pact, detailed in a 94-page document, is only the initial phase of a broader deal that Trump has said may come in as many as 3 sections. "Together, we are righting the wrongs of the past," Trump said in a pomp-filled signing ceremony. "It doesn't get any bigger than this." The agreement will help grow the US economy in 2020 & 2021 by “at least a half a point of additional GDP” & “probably translate into another million jobs on top of what we’ve already done,” Larry Kudlow, director of the National Economic Council, said. Lighthizer says the deal is "fully enforceable" if Beijing fails to live up to its end of the agreement & the pact includes mechanisms for handling violations of intellectual property rights. Its dispute-resolution process will allow either side to appeal if it believes the other is "not acting in accordance" with the agreement. The document specifies that both China & the US "shall ensure fair and equitable market access" for businesses that depend on the safety of trade secrets. Specific measures that will protect pharmaceutical firms' intellectual property, govern patents, block counterfeiting on e-commerce platforms & prevent exports of brand-name knockoffs are detailed. In return, the US will reduce tariffs on some products made in China, but keep duties the White House has imposed on $375B worth of merchandise. Following the phase-one signing, $250B of Chinese imports will still be subject to a 25% tariff & $125B of Chinese goods will be under a 7.5% levy. "These tariffs will stay in place until there is a phase two," Treasury Secretary Steve Mnuchin said. "If the president gets a phase two quickly, he'll consider releasing tariffs as part of phase two. If not, there won't be any tariff relief. It has nothing to do with the election or anything else. There's no secret agreement." Trump says phase 2 negotiations will begin “immediately.” though he pointed out that China is "doing many more things in phase one than anyone thought possible."
US economic activity continued to expand “modestly” over the last 6 weeks of 2019, according to the Federal Reserve's Beige Book. Richmond & Dallas districts reported growth at above-average rate, while 3 others; Philadelphia, St. Louis & Kansas City, reported sub-par performance. Expectations of the near-term outlook “remained modestly favorable.” The economy looked pretty much the same as during much of last year. Manufacturing activity was flat, while consumer spending was powering the economic growth. Auto sales were uneven, with a handful of districts reporting flat sales. One thing that is new are reports of job cuts in manufacturing, transportation & energy sectors. Still, the labor markets remained tight throughout the nation. A number of districts reported retail selling prices rising at a slightly faster, but still subdued, pace. Some businesses were passing along tariff costs to consumers. This was occurring mainly in retail sector but also in construction. Economic growth has been slowing gradually from the 3% annual rate seen in late 2018. Out of concern with this trend, the Fed cut its benchmark interest rate by 75 basis points last year. As a result, many economists & Fed officials believe there will be a “soft-landing,” where growth slows only a bit, to the “trend” growth rate, estimated around 1.75-2%.
Recent Federal Reserve interest-rate moves seem to have given investors a green light to buy risky assets & this is a concern, said Dallas Fed Pres Robert Kaplan. Asked if he worries that Fed policy decisions have given investors “a green light,” Kaplan replied: “Yes, I do.” The S&P 500 index has been up 6.5% since the last rate cut in early Nov. 3 factors are at play, Kaplan said. First, interest rates are lower as a result of the central bank's 3 rate cuts in 2019, he said. Secondly, investors have the “perception” that the bar is higher for future rates hikes, he said. “My own view is [buying bills] is having some effect on risk assets. It is a derivative of QE in that when we buy bills and we inject more liquidity, it affects all risk assets,” Kaplan added. “Growth in the balance sheet is not free. There is a cost to it,” he said. While it was important for the Fed to take action in the repo market, he said it shouldn't last forever. “It is very important that we come up with a plan, and communicate a plan for winding this down & tempering balance sheet growth,” he said. The Fed started lending funds to the money market through overnight & longer-term repo operations in last Sep after a sudden spike in short-term borrowing costs after liquidity in the market suddenly dried up. The NY Fed announced yesterday that this lending would continue at least into mid-Feb.
Federal Reserve Bank of Philadelphia leader Patrick Harker said that while he was very skeptical of last year’s central bank rate cuts, he believes monetary policy is now in a “good place.” “I don’t think we need to move rates in either direction” in an economy that’s generally doing well, despite considerable uncertainty about the outlook.
The NY Federal Reserve's Empire State business conditions index rose 1.5 points to 4.8 in Jan, the regional Fed bank said. The forecast expected a reading of 3.6. Any reading above zero indicates improving conditions. The new-orders index rose 4.9 points to 6.6 in Jan while shipments fell 0.9 points to 8.6. Unfilled orders continued to decline. Optimism about the 6-month outlook remained restrained. The index for future business conditions edged down 3 points to 23.6. The headline index has been in a narrow range since the middle of 2019. Overall, the factory sector continued to struggle, hurt by intl trade worries, a pull back in spending, & Boeing (BA), a Dow stock, issues over its grounded 737 Max airplane. Investors look at the data mainly to get a sense of the US national ISM index, which has been contracting for 5 straight months. The regional Fed indicators have not been as weak as the ISM in recent months. In Dec, the ISM factory index slipped to 47.2, the weakest reading since the recession.
Mnuchin says China trade war ‘absolutely’ worth it even if a phase one deal is all the US gets
There was selling in the last hour of trading, although buying into the close brought the Dow back over 29K. The Dow finished 95 below its early highs. The bulls are not complaining & hope to see the Dow top 30K soon. Signing the USMCA deal next week should bring more stock buying.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
Pres Trump signed a landmark trade agreement with China, heralding a period of detente in a trade war between the world's 2 largest economies fueled by decades of complaints that Beijing was manipulating its currency & stealing trade secrets from American firms. The pact, detailed in a 94-page document, is only the initial phase of a broader deal that Trump has said may come in as many as 3 sections. "Together, we are righting the wrongs of the past," Trump said in a pomp-filled signing ceremony. "It doesn't get any bigger than this." The agreement will help grow the US economy in 2020 & 2021 by “at least a half a point of additional GDP” & “probably translate into another million jobs on top of what we’ve already done,” Larry Kudlow, director of the National Economic Council, said. Lighthizer says the deal is "fully enforceable" if Beijing fails to live up to its end of the agreement & the pact includes mechanisms for handling violations of intellectual property rights. Its dispute-resolution process will allow either side to appeal if it believes the other is "not acting in accordance" with the agreement. The document specifies that both China & the US "shall ensure fair and equitable market access" for businesses that depend on the safety of trade secrets. Specific measures that will protect pharmaceutical firms' intellectual property, govern patents, block counterfeiting on e-commerce platforms & prevent exports of brand-name knockoffs are detailed. In return, the US will reduce tariffs on some products made in China, but keep duties the White House has imposed on $375B worth of merchandise. Following the phase-one signing, $250B of Chinese imports will still be subject to a 25% tariff & $125B of Chinese goods will be under a 7.5% levy. "These tariffs will stay in place until there is a phase two," Treasury Secretary Steve Mnuchin said. "If the president gets a phase two quickly, he'll consider releasing tariffs as part of phase two. If not, there won't be any tariff relief. It has nothing to do with the election or anything else. There's no secret agreement." Trump says phase 2 negotiations will begin “immediately.” though he pointed out that China is "doing many more things in phase one than anyone thought possible."
'Doesn't get any bigger': US, China sign historic 'phase one' trade deal
US economic activity continued to expand “modestly” over the last 6 weeks of 2019, according to the Federal Reserve's Beige Book. Richmond & Dallas districts reported growth at above-average rate, while 3 others; Philadelphia, St. Louis & Kansas City, reported sub-par performance. Expectations of the near-term outlook “remained modestly favorable.” The economy looked pretty much the same as during much of last year. Manufacturing activity was flat, while consumer spending was powering the economic growth. Auto sales were uneven, with a handful of districts reporting flat sales. One thing that is new are reports of job cuts in manufacturing, transportation & energy sectors. Still, the labor markets remained tight throughout the nation. A number of districts reported retail selling prices rising at a slightly faster, but still subdued, pace. Some businesses were passing along tariff costs to consumers. This was occurring mainly in retail sector but also in construction. Economic growth has been slowing gradually from the 3% annual rate seen in late 2018. Out of concern with this trend, the Fed cut its benchmark interest rate by 75 basis points last year. As a result, many economists & Fed officials believe there will be a “soft-landing,” where growth slows only a bit, to the “trend” growth rate, estimated around 1.75-2%.
Fed Beige Book reports ‘solid’ holiday sales and ‘modestly favorable’ expectations for 2020
Recent Federal Reserve interest-rate moves seem to have given investors a green light to buy risky assets & this is a concern, said Dallas Fed Pres Robert Kaplan. Asked if he worries that Fed policy decisions have given investors “a green light,” Kaplan replied: “Yes, I do.” The S&P 500 index has been up 6.5% since the last rate cut in early Nov. 3 factors are at play, Kaplan said. First, interest rates are lower as a result of the central bank's 3 rate cuts in 2019, he said. Secondly, investors have the “perception” that the bar is higher for future rates hikes, he said. “My own view is [buying bills] is having some effect on risk assets. It is a derivative of QE in that when we buy bills and we inject more liquidity, it affects all risk assets,” Kaplan added. “Growth in the balance sheet is not free. There is a cost to it,” he said. While it was important for the Fed to take action in the repo market, he said it shouldn't last forever. “It is very important that we come up with a plan, and communicate a plan for winding this down & tempering balance sheet growth,” he said. The Fed started lending funds to the money market through overnight & longer-term repo operations in last Sep after a sudden spike in short-term borrowing costs after liquidity in the market suddenly dried up. The NY Fed announced yesterday that this lending would continue at least into mid-Feb.
Fed’s Kaplan worries that investors got green light to take more risk from recent interest-rate policy
Federal Reserve Bank of Philadelphia leader Patrick Harker said that while he was very skeptical of last year’s central bank rate cuts, he believes monetary policy is now in a “good place.” “I don’t think we need to move rates in either direction” in an economy that’s generally doing well, despite considerable uncertainty about the outlook.
Fed’s Harker Says Rates Should Hold Steady For Now, Money Markets Calm
The NY Federal Reserve's Empire State business conditions index rose 1.5 points to 4.8 in Jan, the regional Fed bank said. The forecast expected a reading of 3.6. Any reading above zero indicates improving conditions. The new-orders index rose 4.9 points to 6.6 in Jan while shipments fell 0.9 points to 8.6. Unfilled orders continued to decline. Optimism about the 6-month outlook remained restrained. The index for future business conditions edged down 3 points to 23.6. The headline index has been in a narrow range since the middle of 2019. Overall, the factory sector continued to struggle, hurt by intl trade worries, a pull back in spending, & Boeing (BA), a Dow stock, issues over its grounded 737 Max airplane. Investors look at the data mainly to get a sense of the US national ISM index, which has been contracting for 5 straight months. The regional Fed indicators have not been as weak as the ISM in recent months. In Dec, the ISM factory index slipped to 47.2, the weakest reading since the recession.
Empire State index shows factory activity treading water
Treasury Secretary Steve Mnuchin believes the US trade war with China will have been worth it even if an incomplete deal is all that is reached. “Absolutely,” Mnuchin said, in response to a question on whether he thought the “phase one” agreement was enough to make the protracted dispute valuable to the US. Mnuchin has been one of Pres Trump's lead negotiators during talks with the Chinese. He described the
administration's view of economic policy to explain why he thinks the
phase one deal is good enough to have been worth the trade war. “Look
at the President’s economic plan: The economy is performing because it
was all about tax cuts, regulatory relief and trade. We now have USMCA
that’s going to pass the Senate this week, we have China phase one,
there’s a deal with Japan, a deal with Korea – these are all going to
have significantly positive effects on the 2020 economy,” Mnuchin said. While Trump
said last week that his administration will begin negotiating the next
part of the trade deal “right away,” the pres also said he may
“wait to finish ’til after the election.” “Because by doing
that, I think we can actually make a little bit better deal, maybe a lot
better deal,” Trump said last week. Mnuchin said that “phase two” of the deal will include easing of US tariffs on goods purchase from China – but the agreements may be segmented into smaller pieces. “Just
as in this deal there were certain rollbacks, in phase two there will
be additional rollbacks,” he said. “It’s really just a question of — and
we’ve said before — phase two may be 2A, 2B, 2C. We’ll see.”
Mnuchin says China trade war ‘absolutely’ worth it even if a phase one deal is all the US gets
There was selling in the last hour of trading, although buying into the close brought the Dow back over 29K. The Dow finished 95 below its early highs. The bulls are not complaining & hope to see the Dow top 30K soon. Signing the USMCA deal next week should bring more stock buying.
Dow Jones Industrials
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