— Waiting on G20. Meanwhile, the budget marches into a wall. S&P/Case-Shiller shows home prices flattening. Consumer confidence slips. Clarida speaks; tomorrow Powell speaks. Administration threatens GM.
Financial Review by Sinclair Noe for 11-27-2018
DOW + 108 = 24,748
SPX + 8 = 2682
NAS + 0.85 = 7082
RUT – 13 = 1492
10 Y – .02 = 3.05%
OIL + .46 = 52.09
GOLD – 7.00 = 1215.60
If you were hoping for confirmation of yesterday’s rally, we really didn’t get that today; it could still come – just not today. Trump told The Wall Street Journal, in an interview published late Monday, that it is “highly unlikely” that he would accept Beijing’s request to hold off on increasing tariff rates on Chinese goods from the beginning of January 2019, raising some doubts about prospects for a detente between the world’s two largest economic superpowers when Trump and Chinese President Xi Jinping meet in Buenos Aires later this week. The pair are set to discuss trade on the sidelines of a meeting of the Group of 20 nations. Trump said that if talks with his Chinese counterpart don’t go well that he could put tariffs on the rest of Chinese imports that are currently not subject to duties. Trump said he’d raise tariffs on $200 billion worth of goods and threatened tariffs on $267 billion more. That latter group would include the products of Apple. U.S. steel company stocks dropped as China’s steel sector slid into bear territory. US Steel slid 8.3 percent, while AK Steel Holdings fell 4.6 percent. Trump and Xi have a chance to finally end the trade hostilities that have upset economies, corporate profits and financial markets all year. A trade deal could offer a big boost for Wall Street, just don’t hold your breath.
Meanwhile, Trump is still calling for a border wall, but Mexico doesn’t look like they will pay for it, so the bill would go to the American taxpayers. By Dec. 7, Congress must pass this spending bill, estimated at $312 billion, to keep some government agencies funded, including the Department of Homeland Security, which polices the border and immigration. Trump now threatens to shut down the government if he does not get funding for his wall. Washington’s focus on the Mexican border coincides with televised images of U.S. border police lobbing tear gas canisters over a border fence in Southern California on Sunday into crowds of asylum seekers, mostly from Central America. Secretary of State Mike Pompeo will meet with the incoming foreign minister of Mexico, Marcelo Ebrard, on Sunday as the two nations work toward a deal to keep asylum seekers in Mexico while their claims are considered.
The House Ways and Means Committee proposed a package of tax provisions on Monday, known as the Retirement, Savings and Other Tax Relief Act of 2018 and the Taxpayer First Act of 2018. The proposed tax legislation includes “tax extenders”, including: Discharge of indebtedness on your principal residence, up to $2 million (if married). Treatment of your mortgage insurance premiums as qualified residence interest: If you own your home and itemize, you can deduct the interest on your mortgage and your home equity loan or line of credit — up to $750,000 in combined debt — as long as you use the money to improve or build your dwelling. Deduction of qualified tuition and related expenses: This provision allows a deduction for college tuition and other related costs of up to $4,000 per year. You do not have to itemize to take advantage of this break. Repeal of required minimum distributions for small retirement accounts, under $50,000. Elimination of age limits for contributing to traditional IRAs. Under current law, companies are allowed to band together to offer retirement plans if their businesses are related. This is known as a “multiple employer plan.” The legislation aims to make these multiple employer plans more accessible. And all this is a reminder that budgets are difficult, and the threat of a government shutdown is a very real possibility.
Several senior European politicians are raising the possibility of new sanctions against Russia to punish it for capturing three Ukrainian vessels at sea. Russia opened fire on the Ukrainian boats and then seized them and their crews on Sunday near Crimea – which Russia annexed from Ukraine in 2014. Moscow and Kiev have tried to pin the blame on each other for the incident.
The S&P/Case-Shiller 20-city index was flat on a seasonally adjusted basis in September compared to August, and was 5.1% higher compared to its level a year ago, the lowest annual increase in nearly two years. Today’s report covers the three-month period ending in September. The 5.1% annual increase is the slowest pace of appreciation since late 2016. The west is still the best, and Las Vegas is on fire. The city that was once one of the poster children of the housing crash saw prices gain 13.5% for the year this month. In the Phoenix market, home prices increased 0.8% for the 3 months ending in September, and house prices are up 7.2% over the past 12 months.
Despite recent deceleration, prices of homes backed by the two government-sponsored enterprises rose 6.9% on average between the third and fourth quarters. That means that the base home mortgage limit will increase the same amount. In most of the U.S., that maximum will become $484,350, up from $453,100 in 2018. The cap for higher-cost areas will be $726,525.
Consumers’ confidence fell in November for the first time in five months, reflecting a slightly less optimistic view among Americans on how the economy will perform next year. The Conference Board’s consumer confidence index slipped to 135.7 this month from an 18-year high of 137.9 in October. The present situation index, a measure of how Americans view the economy right now, edged up to 172.7 from 171.9. That’s just a shade below an 18-year peak. A separate survey that asks consumers what the economy will look like six months from now dropped to 111.0 from 115.1. The survey of consumer confidence shows Americans are still quite optimistic about the economy, if a bit less so than they were just a month or two ago.
Fed Vice Chair Richard Clarida says data will determine the future path of rate hikes. Speaking in New York this morning, Clarida did not commit the Fed to a certain number of rate hikes before wrapping up the years-long policy of “accommodative” interest rates. Instead, Clarida said that the Fed needs to be more flexible in setting its interest rates the farther and farther away it gets from zero-bound interest rates. His outlook on the economy was still positive. He said the U.S. economy has shown “strong growth” and said the job market has been “surprising on the upside for nearly two years.” On inflation, which he said he has been watching closely, he saw the Fed as close to its 2% objective especially when measuring PCE but said the TIPS market might be showing inflation running at “somewhat less” than its target. In recent months, Fed speakers and market commentators have shared different estimates on when the economy will reach its neutral rate and no longer need the promise of increases or decreases in the interest rate. Clarida said the biggest challenge is estimating that neutral rate, which he saw as a moving target. So, more rate hikes, we just don’t know how many.
Tomorrow, Federal Reserve Chairman Jerome Powell will deliver a lunch-time speech to the Economic Club of New York. Powell likely will reiterate that the Fed will continuously reassess the extent of the rate path, an important point in light of weaker global growth, an escalating trade war and a possible slowdown in the U.S.
Shares of General Motors fell 2.5% a day after it closed at a three-month high following the announcement of cost-cutting measures that included layoffs and plant closures. GM will layoff some 14k employees and close multiple factories as part of a broader cost saving scheme. GM estimates the cuts will save $6 billion per year by the end of 2020. Trump on Monday ripped GM’s plans, telling the Journal he told Barra she should stop making cars in China and replace lost production in Ohio. National Economic Council chairman Larry Kudlow also said Trump is looking at withdrawing subsidies on electric cars in the wake of GM’s announcement. Poor Mary Barra. Slow death by unctuous smarm is the worst way to die. Trump would need Congress to pass legislation amending the IRS tax credits for electric vehicles that were in the tax reform passed last year. If Congress were to revise the electric vehicle tax credit, it would also likely have to change it entirely — not only focus on GM.
Tiffany & Co. slid 1% ahead of the jewelry merchant’s third-quarter earnings report to be released before the market open Wednesday. The stock has been under pressure in recent weeks as a supply glut for low-end diamonds has forced prices to fall.
Shares of Bristol-Myers Squibb declined 3%, after the company reported the failure of a study of a prospective skin-cancer drug Monday evening.
It appears that the proxy fight between Dan Loeb’s Third Point and Campbell’s soup is finally over. Loeb, who owns roughly 10% of Campbell’s shares, accused the maker of Chunky of “mismanagement, waste, ill-conceived strategy, and inept execution.” What began with the glass-half-empty hedgie recommending that the company replace the entire board and sell itself ended with a compromise: Third Point was awarded two seats on the board. No soup for Loeb.
United Technologies Corp. said late Monday, that with the completion of the Rockwell Collins acquisition, it plans to spin off its Otis escalators and elevators division and Carrier building systems businesses some time in 2020, leaving UTC as just an aerospace company. Another, bigger, aerospace company – Boeing is already a member of the Dow Jones Industrial Average, so that means that United Technologies might need to leave the Dow. UTC has effectively been a Dow member as early as August 1933, when it entered as United Aircraft