U.S. stocks ended the week lower but emerging markets had modest gains. The main driver of the declines was concern about slowing global growth. The European Central Bank is ending their bond buying program and has predicted slower growth next year. The ECB was able to curb deflation and create modest inflation. However, growth has been uneven and appears to be slowing. This leaves Japan as the only major economy still involved in quantitative easing with the economy fluctuation between growth and contraction. China’s growth has slowed somewhat adding to concerns.
The European parliament has approved a free-trade deal with Japan which is scheduled to take effect February 1st. China announced that it is reducing tariffs on U.S. cars from 40% to 15% and agreed to buy 3 million metric tons of corn in addition to soybeans. Negotiations are ongoing at ending the trade dispute but the Trump administration has set March 1st at a hard deadline to reach a deal or tariffs will increase. Despite government efforts at stimulus, China’s economy is showing signs of slowing.
The Brexit drama continues to rattle investors. Prime Minister Theresa May has not put the negotiated deal up for a vote as she lacks the necessary votes in Parliament. However, she survived a confidence vote this week and has gone back to Brussels for negotiations, but it is doubtful a better deal will be reached before the March deadline.
In the U.S., fear of a government shutdown on December 21st weighed on stock prices. President Trump has threatened to veto any funding bill that does not contain $5BN in funding for a border wall. Democratic leaders Nancy Pelosi and Chuck Schumer have offered $1BN for border fencing. The drama was heightened as the House adjourned for a six day break returning with a few days to take action.
U.S. Treasury yields rose but short term rates rose more than long term rates further flattening the yield curve. Commodities fell including energy which may see weaker demand from China.
Generally speaking U.S. economic data remained strong. Next week the Federal Reserve will meet and is expected to hike short term rates another quarter of a percent. Traders will watch the press conference carefully to get an indication of the path of interest rates next year.
In the numbers this week:
- Europe’s manufacturing PMI fell to 51.4 in December from 51.8 in November, indicating a slower pace of growth.
- Japan announced that its gross domestic product shrank 0.6% in the third quarter or 2.5% on an annualized basis. Japan grew 0.7% in the second quarter. The biggest decrease was in capital expenditures which dropped 10.6%.
- In China
- Retail sales grew 8.1% in November from a year earlier, the slowest growth since 2003 despite stimulus.
- Automobile sales appear to be headed for the first annual decline since the 1990s.
- Industrial output in November was up 5.4% from a year earlier but down from the 5.9% year over year in October. This was the weakest growth in three years.
- The Federal Reserve reported that industrial production rose a seasonally adjusted 0.6% in November. The largest component of the gain was in utilities output as November had colder than normal weather. Factory output was unchanged.
- The Commerce Department reported that retail sales rose a seasonally adjusted 0.2% in November from the previous month. From a year ago retail sales have risen 4.2%. Excluding gas stations retail sales rose 0.5% in November.
- The Labor Department reported
- Producer prices rose 0.1% in November following a 0.6% gain in October. Excluding volatile food and energy, producer prices rose 0.3%. From a year earlier producer prices have risen 2.5% and excluding volatile food and energy prices have risen 2.7%.
- Consumer prices were unchanged in November following a 0.3% increase in October. However, excluding volatile food and energy prices, consumer prices rose 0.2%.
- First time claims for unemployment fell 27,000 to a seasonally adjusted 206,000, the biggest weekly drop since 2015. The prior week’s claims were adjusted up 2,000 to 233,000. The four week moving average of claims fell 3,750 to 224,750.
- The Energy Information Administration weekly report is here wpsrsummary. Also, the EIA reported:
- U.S. Crude oil production remained fell $100K barrels per day to 11.6MM barrels per day.
- Storage of natural gas fell 77BN cubic. Natural gas storage is below the minimum for this date during the past five years.
- According to Baker Hughes, In the past week, the number of active oil rigs fell 4 to 873 and natural gas rigs was unchanged at 198.
Please call us if you have any questions or concerns about your accounts.
Loren C. Rex, CFP®, AIF®, MA Erik A Smith
President Managing Partner
Generations Financial Planning & Wealth Management 269-441-4143
77 E. Michigan Ave, Suite 140
Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
Toll Free: 800-513-8180
Visit our Website: www.genfinplan.com
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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.