Holiday Cheer Among Caution

The markets may continue to trade cautiously this holiday week as they await resolution of 3 key items: /1/ US/China negotiations, /2/ strength of US economic speedup, and /3/ Impeachment Inquiry.  However, the tone should be positive for stocks, ahead of Black Friday, as sales estimates are moving up for the holiday season.

US/China Negotiations
These negotiations should always have been seen as difficult to close, as the US demands require China to make fundamental changes to their economic/political system.  But, the Chinese appear to be changing slowly, with the latest being new laws regarding intellectual property.  An interesting development is the Congressional bill in support of Hong Kong protestors.  The question is whether it will push the Chinese to acquiesce to a greater extent than it has been willing to do in exchange for Trump not signing the bill.  Chinese officials apparently already invited top US officials to Beijing to discuss the negotiations.

Strength of US Economic Speedup
The evidence so far suggests the weakest part of the slowdown is behind us, but the re-acceleration is modest at best.  The Flash Markit Purchasing Managers Indexes improved in November, but their levels are still relatively low.  The Unemployment Claims data have moved up in the past 2-3 weeks, suggesting either that the labor market is catching up to earlier economic slowing or that growth remains subdued.  Indeed, the Atlanta Fed model still puts Q419 Real GDP Growth at a meager +0.4% (q/q, saar).  To be sure, this estimate could be overly influenced by the low October Mfg ISM.  If so, it should move up if the Mfg ISM increases in November.

This week's data are mostly minor.  The most interesting -- October Durable Goods Orders -- may not be recent enough to accurately portray whether there has been an improvement in demand for manufactured goods.  They still may be reflective of the weak part of the slowdown.

Impeachment Inquiry
The Inquiry is on hold for the next couple of weeks while Congress is in recess.  Some commentators think the Democrats will gauge the sense of the electorate during this break before deciding how to proceed.  While a number of Republican commentators are pushing for censure rather than impeachment, the Democrats may be too far committed to the latter to do so.  Whatever they decide, it still looks as if the Senate will not go along with removing Trump from office. 

Black Friday and Holiday Season
Stocks should be optimistic about the holiday season.  Besides there being easy year-over-year comparisons, analysts have been raising their estimates of holiday sales.  The National Retail Federation now thinks sales could exceed the upper end of the 3.8-4.2% y/y range that it had estimated in October.