USMCA meeting today with trade officials from Canada, Mexico and U.S.
In today's updates:
* Trump comments both positive and negative re: trade deal with China
Markets observe normal trading hours today; closed Thursday. U.S. commodity and financial markets will trade normal hours today and will be closed Thursday for the Thanksgiving holiday. Friday will see abbreviated trading hours in several markets, with the NYSE and other markets closing at noon (CT) while the Securities Industry and Financial Markets Association (SIFMA) has recommended a 1 p.m. (CT) close for the bond market. In the ag commodity markets, Friday will see CBOT trading halt at 12:15 p.m. (CT) and CME trading at 12:05 p.m. (CT). US government offices will be closed on Thursday but will be open on Friday.
Retailers are preparing for one of their biggest weekends of the year, with an estimated 165.3 million Americans going shopping Thanksgiving Day through Cyber Monday, according to the National Retail Federation. The majority of consumers are planning to make their purchases on Black Friday, though the day is becoming less and less crucial to retailers as sales stretch beyond Thanksgiving week and more shoppers opt to make their purchases online.
Deere earnings impacted by trade, weather. Deere & Company reported fourth quarter net income of $2.27 per share, above expectations, but below the year-ago period. “John Deere’s performance reflected continued uncertainties in the agricultural sector,” Chief Executive John May said. “Lingering trade tensions coupled with a year of difficult growing and harvesting conditions have caused many farmers to become cautious about making major investments in new equipment.” Deere is also forecasting a decline in sales in the agriculture-and-turf segment and its construction-and-forestry unit in fiscal 2020. They expect ag and turf sales to fall 5% to 10% for the full year and the construction and forestry sales to fall 10% to 15%. Full-year industry sales of ag equipment in the U.S. and Canada are likely to be down 5%, Deere said, as there is likely to be less demand for large equipment.
Federal Aviation Administration admitted it significantly underestimated the number of commercial drones in service. It now expects that there will be more than 450,000 of them in the sky this year, a total it originally predicted for 2022. Analysts at Barclays estimate that the global commercial drone market will grow tenfold from $4bn last year to $40 billion in five years. They believe the use of drones will result in cost savings of some $100 billion. The unmanned aircraft are finding a range of applications, from agriculture to emergency services.
Powerful winds are expected today in the Northwest, with blizzard conditions in the Midwest and rain in the Northeast, after foul weather disrupted plans during one of the busiest travel weeks of the year.
— U.S./China trade policy update:
- American and Chinese trade negotiators are inching closer to agreeing on a Phase 1 trade deal, according to officials from both countries. “We’re in the final throes of a very important deal,” President Trump told reporters at the White House yesterday. “It’s going very well.” And White House counselor Kellyanne Conway said negotiators were “getting really close” to completing a “Phase 1” deal.
- The two sides also have been discussing where — or whether — Trump and Chinese leader Xi Jinping would get together to sign a partial deal. A possible location for signing a deal would be at the World Economic Forum in Davos, Switzerland, in January. Trump has talked for months about Switzerland as a “neutral location” for a signing ceremony between the two nations, say people familiar with the discussions.
- Trump tempered his optimism in an interview with the former Fox News host Bill O’Reilly about the trade deal. “We can’t make a deal that’s like, even,” Trump said in radio interview with O’Reilly, adding that he said that to China’s President Xi Jinping. “I’m holding it up. Because it’s got to be a good deal,” Trump says “We have to make a deal where we do much better, because we have to catch up.”
- Who pays the tax on imports from China? U.S. wholesalers, retailers, manufacturers, and consumers are left paying the tax, the New York Fed's Matthew Higgins, Thomas Klitgaard and Michael Nattinger write in a blog post. Link to commentary.
- More data shows China economy struggling. Chinese industrial profits fell 9.9% in October at 427.6 billion yuan ($60.79 billion) compared with year-ago levels, and a bigger decline than the 5.3% registered in September. State-owned enterprises saw profits fall 12.1% in October and 2.9% for the first 10 months of 2019 versus the same period in 2018, according to the National Bureau of Statistics. "The big drop suggests the real economy is still facing plenty of difficulties... likely prompting authorities to unveil more growth-boosting measures in a gradual and restrained way," said Nie Wen, economist at Shanghai-based Hwabao Trust.
- China 2020 GDP outlook in focus. China’s 2020 GDP target should be set around 6%, according to Yao Jingyuan, an advisor to the State Council. "Growth should be around 6%. We cannot achieve that goal if growth is lower," Yao told reporters at a briefing in Beijing. The State Information Centre, a government think tank, has also proposed setting the target at around 6%. For 2019, China is targeting GDP of 6% to 6.5%. The focus on the economy is coming ahead of the Central Economic Work Conference, a session set for December that will discuss economic targets and policy goals.
— USMCA update:
- Officials from Canada, Mexico, U.S. to meet today. Chrystia Freeland, Canada’s deputy prime minister, and Jesus Seade, Mexico’s USMCA negotiator, are due to meet U.S. Trade Representative Bob Lighthizer today in Washington to discuss the “side letter” that would include the changes negotiated with House Speaker Nancy Pelosi (D-Calif.).
- White House trade adviser Peter Navarro told Fox News that Lighthizer will “do whatever needs to do to give them what they need to get confident about it, meaning that, if they want paper on the deal, yeah.”
— Canada rail strike ends, but recovery could still take time. The week-long strike by the Teamsters Canada union against Canadian National Railway ended Tuesday, but reports indicate the backlogs created by the work stoppage could still take time to be worked through.
Canada Transport Minister Marc Garneau said that work will focus on getting backlogs cleared up quickly, but he warned that the process was complex and would take time. He also hailed the agreement and said that had the government intervened by bringing the parliament back in, “We would not have had a solution.” The agreement must still be ratified by the 3,200 workers in the union.
Potash and fertilizer giant Nutrien Ltd. had said it planned to cut production at its largest potash mine due to the railroad strike.
Major companies warned that the Canada’s rail sector is essentially a duopoly with CN and Canadian Pacific Railway Co., leaving “shippers with very few, if any, alternatives during a service disruption,” the Wall Street Journal reported (link).
— Other items of note:
Trump says U.S. to designate Mexican drug cartels as terrorists. Mexican officials criticized the plans, saying it opens the door to more direct U.S. intervention in their affairs. The move comes three weeks after nine Americans were killed in northern Mexico.
American cattle ranchers fight back against fake meat. Beef producers and their allies are marshalling food scientists and lobbyists in an effort to derail the rise of alternative meats. Link to Wall Street Journal article.
— Markets. Another set of records for U.S. equity markets on Tuesday as the the Dow gained 55.21 points, 0.20%, at 28,121.68. The Nasdaq rose 15.44 points, 0.18%, at 8,647.93. The S&P 500 moved up 6.88 points, 0.22%, at 3,140.52.
Repo operations escalate. Stepping up its actions to prevent another surge in repo rates, the New York Fed added $92.7 billion in temporary liquidity to the financial system on Tuesday. The previous day, the bank conducted the first operation of its third, longer-term repo loans, which — at 42 days —go beyond year-end. The Fed has been intervening in markets in the current fashion since mid-September and hopes to cut back on interventions at the start of 2020.
A very busy day for economic numbers. Some of them:
- U.S. durable goods orders for October are expected to fall 1% from the prior month. (8:30 a.m. ET)
- U.S. gross domestic product for the third quarter is expected to advance at a 1.9% pace, unrevised from an earlier reading. (8:30 a.m. ET)
- U.S. jobless claims are expected to fall to 220,000 from 227,000 a week earlier. (8:30 a.m. ET)
- Chicago purchasing managers index for November is expected to rise to 47.1 from 43.2 a month earlier. (9:45 a.m. ET)
- U.S. consumer spending for October is expected to rise 0.3% from the prior month. (10 a.m. ET)
- The personal-consumption-expenditure price index excluding food and energy for October is expected to rise 0.1% from a month earlier and 1.7% from a year earlier. (10 a.m. ET)
- U.S. pending-home sales for October are expected to rise 0.8% from the prior month. (10 a.m. ET)
- The Baker Hughes rig count is out at 1 p.m. ET.
- The Federal Reserve releases its beige book report on U.S. economic conditions at 2 p.m. ET.
Greenspan comments on trade, U.S. economy. Former Fed Chairman Alan Greenspan told the Fox Business Network Tuesday that expecting the U.S. to slide into recession is premature and he expressed a hope that the U.S./China trade situation will be resolved. Asked to comment on the current backdrop for the U.S. economy, Greenspan said, “I read it by the fact that there is an ever increasing expectation that the issue of tariffs and the tariff wars are going to get resolved because there is no question that the type of tariff structure that we have had and the customs that are flowing in have been a significant deterrent to economic activity. And if the Chinese/U.S. relationship, which is a major one in the world, can come together so that there is a maximum amount of interaction and trade, the expectation is that the economies will rise faster. And it is reflected in the stock price.” Asked if he thought there would be a U.S./China deal, Greenspan commented, “You are asking me to make a political forecast, and… these days this is not the easiest thing to do.” As for the U.S. economy, he said it has been doing “far better” than he has expected. But he said a 1.9% GDP mark for the third quarter would be a reflection that things are stabilizing. “This economy is not about to run away on the upside, but I think that the presumption that it is going to sink into a recession, which means a negative rate of growth, I think is very premature at this stage.”