The Middle East conflict with Iran has dominated headlines for the past week. Investors will now look ahead to the signing of the “Phase-One” trade deal between the U.S. and China in the week ahead.
ISM Non-Manufacturing Index
The ISM Non-Manufacturing Index for December rose by +1.1 points to 55.0 vs. the 53.9 in November and expectations of a 54.5 print. This is now a 4-month high with generally all sectors reporting optimistic outlooks. The business activity index posted the best result, up +5.6 points to 57.2, while new orders were down -2.2 to 54.9 and a 3-month low. In other sectors, employment fell by -.3 to 55.2, while supplier deliveries rose +1 to 52.5.
The trade balance report for November showed a narrowing of $3.8bln in the monthly deficit to $43.1bln, down from a previously revised $46.9bln in October (orig. $47.2bln). If we look over the last 10 years, the trade deficit has now averaged $45.1bln. Back to the November report, we are seeing some mixed trade flows, as imports fell by -1% vs. exports climbing +.7% higher. This is now the third consecutive monthly decline in the imports sector.
December Jobs Report
December non-farm payrolls rose by +145k on headline, with private payrolls up +139k and government payrolls up +6k. Average hourly earnings came in weaker as well, only up +.1% vs. +.3% expectations. Wages are now up +2.9% YoY. The unemployment rate, when rounded, held steady at 3.5%. Overall, a mixed report, that while not too pretty on headline, had more positive details within suggest the labor market remained stronger through 2019.
Middle East Conflict
U.S. equities returned to their record setting weight just a week after a U.S. airstrike killed Iran's top military commander and set off a string of geopolitical developments that aggravated markets around the globe. Despite the tit-for-tat military actions over the last several days, Iran's foreign minister said it had "concluded" its response to the U.S. action and President Trump later said America would implement economic sanctions but gave no indication of further military activity.
Although it has had little market impact, the U.K.'s lower house easily passed PM Johnson's Withdrawal Agreement Bill by a vote of 330 to 231, sending the bill to the House of Lords and paving the way for the U.K. to finally exit the EU at the end of the month. The heavy lifting is far from over, however, as the government must now work on details of the parties' future relationship before the transition period expires at the end of the year. PM Johnson has said there will be no extension while the EU has indicated it believes it will be nearly impossible to finalize a deal in the eleven months that remain.