Market in a Minute: December 31-January 4, 2018

Saturday, January 5, 2019

by Rich and Sheila Jamison

Executive Summary

Wall Street kicked off 2019 on a higher note, shaking off a significant decline to open 2019. Strong US employment data and soothing comments from the chair of the US Federal Reserve helped calm markets. The yield on the US 10-year Treasury note stands at 2.66%, down about 10 basis points from pre-holiday levels. A barrel of West Texas Intermediate crude oil is rose 6% (to ~$48) while volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), has cooled to 21.5 after spiking into the mid-30s over the holidays.




Thursday's very weak US manufacturing data (next paragraph) raised fears that the economy is beginning to downshift along with the rest of the global economy. Friday's employment report put those fears to rest, at least for the near term. We added an extraordinary 312,000 jobs in December, nearly doubling expectations for a rise of 175,000. Average hourly earnings rose 3.2% year over year. The unemployment rate rose to 3.9% from 3.7% as new entrants were added to the labor force. Also on Friday, Fed chair Jerome Powell communicated that the central bank will be patient as the economy evolves but is fully prepared to shift its policy stance significantly if necessary. Powell also said the Fed would not hesitate to adjust the pace of the balance sheet runoff if necessary, a shift in tone from his December press conference, at which he indicated that the balance sheet reduction is likely to remain on autopilot. Markets welcomed his comments, adding to the rally that began on the jobs number. The Fed chair said he would not resign if President Trump asked him to and that no meeting with the president was scheduled.

While our manufacturing sector spent much of 2018 growing more quickly than did its developed market counterparts, its pace slowed dramatically as 2018 ended. The clearest sign was the closely watched ISM's manufacturing PMI. That measure tumbled more than five points in December, to 54.1 from a robust 59.3 in November, the biggest one-month decline since the fall of 2008. Survey participants pegged the recent loss of confidence mainly on the ongoing US–China trade conflict.

On that topic, China's commerce ministry announced Friday that US-China trade talks at the vice-ministerial level are resuming this week.

In a Sears follow up, Sears declined Lampert’s $4.4 billion bid, saying it undervalued the company. Liquidation is the likely next step.


The Eurozone PMI slipped to 51.4, suggesting weakness is spreading around the world.

China's manufacturing PMI fell into contraction territory in December, below 50. This was one of a flurry of headlines including those referring to a series of cuts amounting to 100 basis points by late January to the People's Bank of China's reserve requirement ratio. China continues to fine-tune economic policy in an effort to support growth.

The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; BBC News; The Associated Press; Reuters.com; Crain’s New York Business; MFS research; NYSE; NASDAQ; Dorsey-Wright Associates; NYMEX.com; CNBC’s Power Lunch & Squawk Box programs; Investing.com; Markit.com; the New York Times; Standardandpoors.com; Djindexes.com; 247wallstreet.com; MarketWatch.com; Morningstar.com; Thomsonreuters.com; the Financial Times.com; Briefing.com; BusinessWeek.com; Dol.gov; Fxstreet.com; Streetinsider.com; Ycharts.com;
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