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4:00 p.m. ET: Whipsaw session leaves stocks little changed
U.S. stocks ended near breakeven on Friday, fluctuating between gains and losses as investors struggled to reconcile what a provisional U.S.-China deal would mean for the ongoing trade war. The Dow swung between an as much as 158 point gain and 60 point loss during Friday’s session.
Here’s where the main gauges ended the day:
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S&P 500 (^GSPC): flat, or +0.23 points
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Dow (^DJI): flat, or 3.33 points
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Nasdaq (^IXIC): +0.2%, or 17.56 points
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10-year Treasury yield (^TNX): flat to 1.8190%
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Gold (GC=F): +0.57% to $1,480.70 per ounce
1:50 p.m. ET: Crude higher after Baker Hughes rig data
Markets are seesawing near breakeven amid mixed messages from the U.S. and China on trade, but crude (CL=F) is more than 1% higher on the day. Baker Hughes oil rig data showed that American producers added rigs for the first time in eight weeks, but producers are pressing ahead to cut spending on new drilling.
According to Baker Hughes, the U.S. oil rig count is on track for its first annual decline since 2016.
12:06 p.m. ET: Uber tries to get a second shot in London
After being stripped by U.K. regulators of its ability to operate in London, Uber (UBER) has submitted an appeal in an effort to have its privileges reinstated. The process may be lengthy and ultimately denied, but it allows the ride-sharing service to keep operating in the city, for now.
11:00 a.m. ET: UK elections roundup: ‘Christmas has come early’
Britain’s Prime Minister Boris Johnson returns to 10 Downing Street after meeting with Queen Elizabeth II at Buckingham Palace, London, on Friday, Dec. 13, 2019. Prime Minister Boris Johnson’s Conservative Party has won a solid majority of seats in Britain’s Parliament — a decisive outcome to a Brexit-dominated election that should allow Johnson to fulfil his plan to take the U.K. out of the European Union next month. (AP Photo/Matt Dunham)
Markets are still sorting through the U.S.-China trade war, but Brexit is limiting the downside. It removes a major source of investor anxiety — even though the hard part comes as U.K. Prime Minister Boris Johnson moves to finalize a deal next year.
With an emerging scenario of a “market melt-up” as Bank of America called it on Friday, markets are primed for more gains. Below are reactions from market watchers on what comes next:
Nigel Green, chief executive and founder of deVere Group: “Boris Johnson’s election gamble has paid off. Christmas has come early for the pound, the British economy and UK financial assets.”
A clearer path toward Brexit also opens the doors to a shift in U.K. monetary policy, and a higher pound (GBP), Goldman Sachs notes:
The reduction of political risks should see a modest repricing higher of the policy rate path—indeed, the Bank of England is the only G10 central bank where we forecast a rate hike in 2020…
While we see a less compelling risk/reward proposition over the near term, Sterling may drift higher over the coming months as sidelined investors reengage in UK assets.
Jefferies sees “huge” economic implications:
We expect the UK to formally leave the EU in the first few months of 2020. The challenge is trying to guess what long-term relationship the government pursues with its EU partners. We pin a 60% likelihood on Boris’s deal but still see a 20% chance of a soft Brexit. The risk of political brinkmanship means that a 20% chance of ‘No Deal’ remains. In any event, the status quo in terms of trade and regulatory alignment appears almost certain for 2020.
…and OANDA’s senior market analyst Craig Erlam sums it up:
The feeling of fatigue is nothing new for those of us that has followed British politics over the last four years but there is a sense that we’re finally seeing the light at the end of the Brexit tunnel and that’s what we’re seeing reflected in the pound.
Yet ING is not nearly as excited as everyone else is, and is predicting more uncertainty in 2020:
…So until we get more clarity on the transition, this all means the start of 2020 will be an uncertain phase for the UK economy. For many firms, an abrupt end to the transition period – which would see the majority of the UK leave the single market and customs union – would be very similar to a ‘no deal’ Brexit.
Even if an extension is ultimately agreed, there’s a clear risk this doesn’t happen before the EU’s June deadline. If that’s the case, then firms will likely allocate extra resources to contingency planning. Alongside weak capital spending, this could amplify the current fragility in the jobs market.
But if an extension can ultimately be agreed, a cloud of uncertainty would lift. If coupled with better global activity and an improved jobs backdrop, this would probably persuade the Bank of England to steer away from interest rate cuts next year.
Either way, it’s worth remembering that is could still be some time before we get better clarity on the future relationship for specific industries. Investment will remain capped.
10:35 a.m. ET: Retail sales and Q4 growth
November’s softer-than-expected retail sales data, which rose 0.2% during the month and core sales rising a slim 0.1%, suggests the consumer may be tiring of single-handedly holding up growth.
According to JPMorgan Chase’s Daniel Silver, November’s figures are consistent with a worrisome trend that’s been evident for the last few months. Yet he notes a silver lining:
…But the broad set of consumer-related indicators still looks healthy, and combining a variety of related inputs, we think that real consumption growth is still on pace for a decent fourth quarter (at around 1.9% saar, down from our 2.1% tracking before the retail sales report).
Moreover, it is probably worth waiting until the December sales data are released to take a strong view on consumer spending during the holiday season given the possibility that the late timing of Thanksgiving this year could have pushed some holiday shopping from November into December.
In terms of GDP tracking, the recent disappointments in retail sales add a little downside risk to our 2.0% real GDP growth forecast for 4Q. The downward revisions to earlier data also trimmed our 3Q GDP growth tracking from 2.1% to 2.0% saar.
10:15 a.m. ET: House set for full vote on Trump impeachment
The House Judiciary Committee on Friday recommended that President Donald Trump be impeached for obstructing a congressional probe, Reuters reports. The panel’s approval of the article of impeachment sets the stage for a vote by the full House of Representatives next week.
10:03 a.m. ET: Stocks claw back gains on U.S.-China hopes
Despite President Donald Trump’s earlier statement, Chinese officials state that both sides have made “significant progress,” and have agreed to a “Phase One” deal that covers a range of sticking points like intellectual property, technology, financial services and currency. Stocks get lifted to fresh session highs on the news.
9:56 a.m. ET: ‘The trust is gone’
In this Thursday, Dec. 12, 2019, photo, an investor monitors stock prices at a brokerage in Beijing. Shares likewise jumped Friday, Dec. 13, 2019 in Asia following fresh all-time highs overnight on Wall Street spurred by optimism that the U.S. and China are close to reaching a deal to end their costly trade war. (AP Photo/Ng Han Guan)
The confusion sparked by Trump’s denials that a U.S.-China “Phase One” deal was imminent puts on full display the president’s mercurial style and his affinity for tariffs as a weapon. It also reinforces the likelihood that the global trade order has been dealt an irreparable blow by the Sino-American trade war.
In a blog post on Friday, UBS’s Paul Donovan says the world would reap the benefits of a trade deal, but laments that “the U.S. economy and the world economy are still in a worse place than three years ago.” Why?
Donovan lays out his case accordingly:
For thirty years, large companies invested in global supply chains. Global supply chains worked because global trade rules were known and trusted. The US attracted foreign investment as a link in these supply chains.
Now the trust has gone. Investment in developed economies has slowed dramatically since early 2018. Foreign investment into the US has slowed. Foreign investment into China has slowed. Would a Phase 1 trade deal rebuild trust in global trade structures? It seems unlikely.
The US has reversed trade agreements with Argentina and Brazil.
With Trump’s antipathy toward trade agreements having impacted a wide array of pacts with other major U.S. trading partners, Donovan said a Phase One deal may not completely crack the wall of worry companies have about the outlook — and may bode poorly for the U.K.’s own efforts to craft a trade deal with the U.S after Brexit:
A company investing in a global supply chain may worry that a Phase 1 trade deal will not last once Chinese food prices decline, or the US elections are held. Without that trust, investment will be limited. That means that the global economic boost from a Phase 1 deal will be limited.
9:45 a.m. ET: Business inventories rose in October
U.S. business inventories rose in October, primarily led by retailers and in line with market expectations. The Commerce Department said on Friday that business inventories rose 0.2% after slipping 0.1% in September. Inventories are a key component of gross domestic product.
9:30 a.m. ET: Stocks boosted by Brexit, but U.S.-China talks a worry
Wall Street’s appetite for risk returned with a vengeance on Friday, following a decisive win for British Prime Minister Boris Johnson after the U.K. general elections.
The removal of uncertainty surrounding Brexit — with the election results interpreted as a mandate for Johnson’s aggressive plans for withdrawal — helped spark a worldwide risk rally, but developments in U.S.-China trade negotiations flattened early gains.
Here’s where markets began trading Friday:
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S&P 500 (^GSPC): -0.11%, or 3.5 points
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Dow (^DJI): flat, or -17.04 points
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Nasdaq (^IXIC): -0.14%, or 13.28 points
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10-year Treasury yield (^TNX): flat to 1.87%
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Gold (GC=F): +0.16% to $1,474.60 per ounce
Stocks reversed early pre-market gains after President Donald Trump refuted a report that suggested a partial trade deal with China would necessarily include a roll-back of existing tariffs.
Gains were also capped by retail sales data that came in weaker than consensus forecasts.
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