Markets sold off on Monday and Tuesday off after negative comments from President Trump saying the China trade agreement may not be reached until after the 2020 election. He put tariffs on Brazilian and Argentinean steel due to their weakening currencies. He also threatened to impose tariffs on France over their digital-services tax believed to unfairly target U.S. technology companies. By Wednesday, sources in both the U.S. and China indicated that the phase 1 trade deal was still on track, indicating the negative comments likely were just posturing. Friday saw a blowout jobs number, much stronger than expectations. Despite the large rally on Friday, stock indexes ended the week mixed with S&P 500 up slightly, the Dow 30 down slightly and the Nasdaq was flat.
OPEC+ surprised by agreeing to another 500,000 barrel per day cut in addition to existing cuts. The additional cut is only for the first quarter of 2020. They had been expected just to keep current cuts in place.
The 10-year Treasury yield rose to 1.841%. Crude oil rose to $59.07 a barrel. The U.S. dollar fell against a basket of currencies and gold prices fell to $1464.50 an ounce.
The 2017 tax cuts leaves the US with one the fourth lowest total tax burdens in the world as a percentage of gross domestic product:
Source : OECD
However, the U.S. is also running some of the largest government budget deficits relative to GDP:
And the fifth highest accumulated government debt to GDP numbers:
Source : OECD
In economic numbers this week:
- Germany reported that factory orders fell 0.4% in October, following an increase of 1.5% in September. From a year earlier, German factory orders have fallen 5.5%.
- Caixin/Markit released their China purchasing managers indexes:
- Manufacturing rose from 51.7 in October to 51.8 in November.
- Non-manufacturing (services) rose from 52.8 on October to 54.4 in November.
- IHS Markit released purchasing managers indexes for the U.S.:
- Manufacturing rose from 51.3 in October to 52.6 in November.
- Services rose from 50.6 in October to 51.6 in November.
- The Commerce Department reported the foreign-trade gap in goods and services fell 7.6% in October from September as overall imports decreased more than exports. Imports from China have fallen 23% from a year ago.
- The Labor Department reported
- First time claims for unemployment fell 10,000 to a seasonally adjusted 203,000. The four week moving average of claims fell 2000 to 217,750.
- The U.S. created 266,000 jobs in November and unemployment declined back to 3.5%, a 50-year low. 41,000 jobs were added just in auto manufacturing as the GM strike ended. September and October numbers were revised up by 41,000.
- The EIA weekly oil report is attached. Also, the EIA reported in the past week:
- Field production of crude oil was unchanged at 12.9MM barrels per day.
- Natural gas storage fell by 19BN cubic feet and is at the five year average at this time of year.
- Baker Hughes reported the number of active oil rigs fell 5 to 663 and the number of active gas rigs rose to 133.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith
President Managing Partner
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.