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Phase 1 Trade Deal With The Chinese Gets Signed
The Market Bull 2020

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The Market Bull – January 15, 2020

A phase 1 trade deal with the Chinese gets signed at long last, though their remains much work to be done to settle the trade war. Markets closed with small gains.

The Mortgage Bankers Association reports that mortgage activity surged 30.2% last week as Refi’s jumped 42.7% and purchase apps increased 15.5%. Impressive numbers to be sure, but they have more to do with the year end holiday induced slowdown than anything else. The 30-year jumbo loan rate fell slightly to 3.83%.

The New York Fed manufacturing index gained 1.3 points to 4.8 in January, slightly ahead of expectations. Strength was noted in new orders, employment was mixed while price data jumped. The trade deal should help the various manufacturing indexes going forward.

The wholesale price measuring Producer Price Index or PPI advanced a less than expected .1% in December. For all of 2019 this series gained just 1.3%, a 4th consecutive month below 1.5% on a year ago basis, and far lower than the Fed’s desired 2% inflation target. Once again energy was the primary driver of prices.

The latest Fed Beige Book on regional economic conditions noted that economic activity increased modestly from mid-November through the end of 2019. While holiday sales were reported as robust, early earnings reports indicate the opposite being true. Credit demand was solid, while businesses continued to report uncertainty with respect to the trade war and tariffs. With today’s signing of the phase one trade deal with the Chinese, these concerns should diminish going forward. Labor shortages remain an issue, though companies wage and salary proposals continue to prove unable to boost the labor force participation rate by attracting people back into the workforce. This last bit is another part of the conundrum that the labor market continues to present. On the one hand a 50+ year low unemployment rate suggests that just about everybody that wants a job has one. At the same time wage growth remains historically quite low while the long-term relationship between wage growth and the unemployment rate expressed through the Phillips Curve remains broken and is much of the reason for the lack of labor force participation. As people decide it’s better to not work, for one reason or another.

Standard and Poors 500 Index closed at: 3,289.29 up 6.14
NASDAQ finished the day: 9,258.70 up 7.37
Gold ended trading at: $1,555.70 up $11.10


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