Daily Market Color November 26, 2018Retailers Rise as Holiday Season Kicks Off Risk Assets Bounce Back, Unconvincingly With record sales expected to be reported to have taken place on Black Friday and Cyber Monday, retailers led the move up for both the S&P 500 (+1.55%) and the Dow Jones Industrial Average (+1.46%), while tech shares rebounded from last week’s plunge and assisted in leading the Nasdaq +2.06%. The price action came on below-average volume however, with the S&P trading 18% fewer shares today than average – signaling this may be a weak rally after a prolonged stretch of negative days. Treasury yields/swap rates rose 1-2bps across the curve, as the risk-on stock bid led to net selling of Treasurys and pushed the benchmark 10-year note yield to 3.055%. In energy markets, crude oil was able to reverse a portion of Friday’s 7.7% slide, with WTI futures gaining 2.4% on the day to $51.60/barrel. Market sentiment was dampened in the second half of the trading session after the Wall Street Journal reported President Trump’s expectation that the US would move ahead with raising tariffs on $200 billion Chinese imports from 10% to 25% on January 1st as initially threatened. Trump characterized any potential deviation “highly unlikely” and stated that “the only deal would be China has to open up their country to competition from the United States”. While it may be a negotiation tactic, the report casts renewed uncertainty over the trade dispute with China and further doubt of positive movement towards a broad trade agreement being reached between Trump and Chinese President XI Jinping when they meet this Friday. Brexit Moves One Step Closer On Sunday, the U.K.’s divorce from the European Union moved one step closer towards realization as EU leaders officially approved the proposed trade terms of the post-Brexit relationship agreement put forth by British Prime Minister Theresa May. The next step for May (and perhaps the most daunting task) requires her gaining acceptance to the proposal from her own Parliament, with members on both sides of the aisle seemingly strongly against the latest proposal. Should May be unable to gain sufficient support for the current version of the agreement from Parliament, she would be forced to present EU officials with updated terms, which could put the planned departure of the U.K. on March 29, 2019 in serious jeopardy. Jean-Claude Juncker, the President of the European Commission, has already labeled the current terms as “the best deal possible for Britain” while Italian Prime Minister Guiseppe Conte stated that the only alternative to the proposed deal is no deal at all. The vote within the British Parliament is expected to occur on December 12th.
