Monday, October 14, 2019
The market is all about trade
There is a lot going on in the world of President Donald Trump. But when it comes to Trump-related matters that impact the economy, there is only one thing consumers care about or mention. And that is trade.
On Friday, the University of Michigan’s latest check on consumer sentiment showed an uptick in October after having waned last month. And though overall sentiment is off the almost two-decade highs we saw following the election, the tornado of negative news that seems to follow Trump largely remains outside the economic conversation. At least as far as U.S. consumers see things.
“The impeachment inquiry has not had a significant negative impact on economic prospect; it was negatively mentioned by about half as many as negatively mentioned the GM strike (3% versus 5%),” said Richard Curtin, chief economist for the survey of consumers. “Overall, the data indicate that consumption spending will be strong enough to offset weakness in business investment spending so as to keep the economy expanding into 2020.”
Additionally, Curtin noted that fewer consumers this month mentioned trade as a negative economic impact — 29% vs. 36% in September — with this report coming before Friday’s news that a “Phase One” trade deal between the U.S. and China had been reached.
And although the market on Friday faded some of its gains into the close, there was certainly investor enthusiasm around trade with each of the major averages jumping more than 1% to finish the week.
Now, the trade deal announced Friday is certainly not the kind of grand deal that keeps trade worries out of the minds of consumers and investors.
“We remain skeptical about a game-changing trade outcome in the near term,” said economists Lydia Boussour and Gregory Daco at Oxford Economics in a note to clients on Friday. “[Friday’s trade announcement] is nothing more than a partial, seemingly unsustainable mini deal lacking in real enforcement mechanisms.”
The market also had a classic “sell the news” reaction to Friday’s headlines regarding what appears to now be a multi-phase process the U.S. and China to reach an agreement. After rising as much as 2% on Friday, stocks closed with much more modest gains.
And like almost all trade-related developments over the last year or so, Friday’s trade news is a classic Rorschach test in that those who believe a real trade is reachable and those who believe a substantive trade deal will never be made can both hold their ground. Indeed, there are already reports surfacing that China wants further talks before signing Friday’s announced deal.
So, those looking for issues other than trade as a major catalyst for shifts in how consumers feel about the economy need to keep looking.
What to watch today
Bond market closed in observance of Columbus Day.
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