Looking for Christmas Gifts

Falling flat 

Core consumer price inflation remained unchanged at 2.3% on an annual basis in November (this used to be close to 3% last summer) and wages remained flat as well. Producer prices were equally unexciting in November with the annual rate of inflation remaining unaffected at 1.1% (this was at a seven-year high of 3.4% last summer).

Moral of the story: Inflation remains completely tame and if even producers aren’t seeing the inflation despite the tariffs, it’s difficult to see how inflation builds up for the consumer. Inflation would have to meaningfully deteriorate or accelerate for the Fed to become concerned – they left policy unchanged, as expected, at the last meeting of 2019 this week, and don’t really plan to shift policy through 2020.


Retail sales fell short of estimates for November, rising only 0.2%, and mainly for auto dealers and internet stores. Holiday shopping is off to an unimpressive start. The late Thanksgiving did push Cyber Monday into December so we could see a slight reprieve in December’s numbers but retailers had boasted really strong Black Friday results and, last I checked, that should have still been part of this November data. 

Moral of the story: Retail sales for the holiday season should be stronger than last year, but that’s a low bar to overcome as sales fell slightly in November last year and then dropped off a cliff in December. However, I’m still not expecting holiday sales to boost GDP in a meaningful way for the last quarter of 2019, especially if all husbands everywhere decide to return the Pelotons they purchased for their wives.

Making progress. About time. 

Guys, it finally happened. The Trump administration finally reached an actual, official, first phase of a trade deal with China. The US will roll down tariffs on Chinese goods in phases and the next round of tariffs that were set to go into effect this weekend have been cancelled. In exchange, China has agreed to increase agriculture purchases significantly. The issues around intellectual property, technology transfer, and financial services still remain unresolved and it seems Trump is ready to start working on the next phase of the trade deal immediately (instead of waiting until after the election, as he had initially said). Elsewhere in the world, Boris Johnson’s Conservative Party will form the next UK government after this week’s elections and the first stage of Brexit is on track for the end of January. 

Moral of the story: Bringing down some of this geopolitical uncertainty heading into 2020 is one of the better Christmas gifts the market could have asked for. I’m really ready to put some of the madness from this year in the past.

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