U.S. Stocks ground higher this first week of the New Year. The FED’s December minutes were released Wednesday and reflected on the election results and the possibility for fiscal stimulus such as infrastructure spending or tax cuts but stressed it was too early to know what changes will come to pass. Friday’s release of the December jobs number was decent but not much lower than forecasts. Treasury yields fell slightly following the sharp rise since the election.
There was positive manufacturing and services growth in China. However, the International Monetary Fund has warned that “China urgently needs to tackle its corporate debt problem before it becomes a major drag on growth. Risks appear high but manageable if the problem is addressed promptly.” It should be noted that China has already burned though about a quarter of its massive foreign-exchange reserves trying to prop up its currency (the opposite of what we’ve been told that China was manipulating its currency lower to boost exports.) The reason China is concerned about the declining currency is that there is much corporate debt denominated in dollars. As the yuan weakens, the cost of repaying that debt goes up.
France is actively courting London based financial companies to locate in Paris due to Britain’s pending exit from the E.U.
US auto sales posted a second consecutive annual sales record. There was strong demand again for pickup trucks and SUVs. However, in late 2016 automakers offered large incentives on sedans which helped to set the record.
In the numbers this week:
- The Institute for Supply Management reported
- Its U.S. purchasing managers index for manufacturing rose to 54.7 in December from 53.2 in November indicating an acceleration of growth with the highest level in two years.
- It’s services PMI was unchanged at 57.2 in December. Anything over 50 represents expansion.
- Caixin reported:
- The private China Caixin manufacturing PMI for December came in at 51.9, a sharp acceleration from Novembers 50.9. This was the fastest expansion since January 2013.
- The private China Caixin services PMI came in at 54.5 down from 54.7 in November.
- The Energy Information Administration weekly report is attached.
- Baker Hughes reported that oil drilling rigs rose by 4 to 529. Gas drilling rigs rose 3 to 135.
- The Labor Department reported
- Initial claims for unemployment fell 28,000 to a seasonally adjust 25,000. The four-week moving average of claims fell 5,750 to 256,750.
- Nonfarm payrolls increased 156,000 in December. For the year, the U.S. created 2.2MM jobs, the lowest number since 2011.
- The unemployment rate increased slightly to 4.7% as more people entered the workforce.
- Wages increased $0.39 an hour in December and 2.9% from the previous December for the largest annual increase in seven years.
- The Commerce Department reported that the U.S. trade deficit widened 6.8% in November as exports fell and imports rose.
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Loren C. Rex, CFP®, AIF®, MA Erik Smith
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