Monday Musings: December 2, 2019

Dec 02, 2019


Public Trust Credit Team

The U.S. manufacturing sector continues to show weakness

The ISM Manufacturing PMI came in at 48.1 today, down from 48.3 the prior month and missing economist consensus of 49.2 by a material margin. New orders (a leading indicator) fell, signaling possible prolonged weakness ahead that is influenced by several factors, but delayed aircraft production in the U.S. is worth noting as it could support the measure moving into 2020. Both Deere and Caterpillar, considered bellwethers for the economy, reported weakness across all segments, driven by lack of investment brought about by trade and demand uncertainty as well as lowered guidance to reflect a more cautious view going forward. All of this is broadly in line with our view that the U.S. manufacturing sector will remain weak as trade tensions and demand continue to pose headwinds to the sector. Across the pond, however, PMIs have surprisingly moved toward the upside, with France continuing an expansionary run that started in August, and Germany posting an increase to 44.1 vs 42.1 the year prior. Even China is beginning to show strength in its manufacturing sector with the official measure moving back into expansionary territory after registering contraction since April. There is a marked divergence in manufacturing activity throughout the world, but we expect that manufacturing will continue to face headwinds moving forward as trade protectionism continues to rise and long-term solutions have yet to appear.

The holiday shopping season is off to a strong start as Black Friday clocked a record $7.4 billion in U.S. online sales, eclipsing 2018 figures by $1.2 billion

Black Friday 2019 was the second biggest day on record for U.S. online sales (trailing 2018 Cyber Monday with $7.9 billion) according to data reported by Bloomberg. Further with $2.9 billion of the $7.4 billion coming from orders placed via smartphones. Data analytics from Adobe forecast this year’s Cyber Monday at a record $9.4 billion in online sales with a predicted $143.8 billion in online sales for the U.S. holiday season. According to the National Retail Federation, overall holiday retail sales during November and December are expected to increase between 3.8% to 4.2% over 2018 for a total of approximately $727.9 billion and $730.7 billion, respectively. In the U.K., holiday retail sales remain bright despite nagging uncertainty surrounding Brexit. According to data analytics from Coresight Research, 2019 holiday sales in the U.K. are expected to be up 2.5% to 4.0% compared to 2018, reaching an approximate midpoint of £83.7 billion.  

U.S. tariffs reinstated with Argentina and Brazil while uncertainty surrounding a Phase One trade deal with China looms

President Trump announced this morning that the U.S. would reimpose a 25% tariff on steel and aluminum imports from Argentina and Brazil, citing the two countries’ responsibility for “massive devaluation” of their respective currencies. While the White House has not yet followed up with additional details or comments, the newly reinstated tariffs, announced via Twitter, will become “effective immediately.” The U.S. is also due to impose an additional 15% tariff on roughly $156 billion of Chinese products by the December 15 deadline unless a “Phase One” trade deal can be reached. Negotiations, however, are thought to have stalled following legislation signed by the Trump administration backing Hong Kong’s protest movements. The bill, entitled the “Hong Kong Human Rights and Democracy Act,” attests that the U.S. will conduct an annual review of Hong Kong’s special trading status and allow U.S. sanctions against officials responsible for human rights violations in the territory. In response, China stated it would impose certain sanctions on U.S. human rights groups and halt U.S. warship visits into the city but has thus far avoided any measures pertaining to trade. The markets now fear that the signing of the bill will further threaten the already slow-moving negotiations between the U.S. and China and that agreeing to the first phase of a trade deal may not be completed by the mid-December deadline.
All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

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