Rates Fall Despite Signed Phase-One Deal and Impeachment Trial

 

Phase one deal formally signed by US and China. The deal is 86 pages in length and covers everything from stricter rules on intellectual property to a pledge by China to purchase at least $200B in US goods. The deal also leaves the vast majority of the existing $360B of US tariffs in place, but puts any additional tariffs on hold while the US and China negotiate a broader agreement. The next phase of talks are expected to begin in mid-February, but there is no timeline for their conclusion. Those talks likely won’t conclude until after November’s presidential election, adding increased importance to what will be a defining event for markets in 2020. The stock market rallied on the signing of the agreement, the Dow Jones Industrial Average closing above 29,000 for the first time while the S&P 500 hit record highs for the 6th consecutive day. In bond markets Treasurys rallied across the curve on the back of weak inflation data, the 10-year Treasury yield falling 3 basis points to 1.78%.

 

 

Impeachment kicks off on Capitol Hill today. The House voted yesterday to officially move impeachment proceedings to the Republican-majority Senate. The news did not garner much of a reaction from markets- consensus opinion being that Democrats will not be able to garner enough Republican support to remove President Trump from office. While an exceptionally rare occurrence, the impeachment is more likely to impact the 2020 presidential election than markets over the next few months. Political wagering site PreditcIt currently has the probability of a conviction at 11%.

 

 

Day ahead. This morning’s retail sales figures showed the US consumer remained willing to spend in the month of December, sales rising 0.3% in the month of December. December’s strong figure comes after retail sales actually contracted in the month of November. Later this morning, data on business inventories will be published. Consensus forecasts call for inventories to contract 0.1% in the month of November following October’s 0.2% increase. Housing Market Index data will also be released, forecasts calling for a slight decline from December’s strong figure. The Fed’s weekly balance sheet report will be released this afternoon. Michelle Bowman, who serves on the Fed’s Board of Governors, will also speak.