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  • January 13, 2020

Week in Review

Week Ending: Friday, January 10, 2020

Recap & Commentary

Markets ended the week higher as geopolitical tensions between Iran and the U.S. eased, and investors looked forward to the expected signing of the “Phase One” trade deal between the U.S. and China on January 15.

Tensions between the U.S. and Iran overshadowed the markets at the start of the week. However, following an Iranian missile attack on U.S. facilities in Iraq that resulted in no casualties, the appearance of restraint by both sides allowed markets to quickly rebound. Before the end of the week, the S&P 500 set another new record high.

Optimism surrounding a potential trade deal between the U.S. and China remained high as Chinese Vice Premier Liu He indicated that he will travel to Washington, D.C. this upcoming week to sign the “Phase One” trade deal. Should the deal get signed, investors will eventually turn their attention towards a potential “Phase Two” trade deal. For now, however, investors seem content with the “Phase One” trade deal given how long it has taken to secure.

Reflecting ongoing concerns about trade uncertainty, and the attendant impact upon economic activity, the World Bank lowered its 2020 global growth forecast from 2.7% to 2.5%, slightly better than the expected 2.4% growth for 2019. The bank noted that “While growth could be stronger if reduced trade tensions mitigate uncertainty, the balance of risks is to the downside.”

Economic Bullet Points

Employment Report—December nonfarm payrolls increased 145K, below the consensus of 160K. Additionally, the outsized gain of 266K originally reported for November was reduced marginally to 256K. The unemployment rate remained at 3.5%, a 50-year low, matching consensus, and average hourly earnings edged up 0.1% during the month. Earnings failed to accelerate, easing to 2.9% y/y from 3.1% y/y, and below the consensus of 3.1% y/y. That left a disturbing downtrend from its peak nearly a year ago. However, the data was consistent with Fed expectations, so the committee will likely hold rates steady.

ISM Services—The ISM Non-Manufacturing Index (NMI) rebounded 1.1 points in December to 55.0, a four-month high, and above the consensus of 54.3, as services activity strengthened. Contrary to its manufacturing counterpart, the NMI is well above the break-even level of 50 and is consistent with a continued moderate pace of economic expansion.

Trade Balance—The trade deficit shrank by $3.9 billion in November to -$43.1 billion, its lowest level since October 2016, and smaller than the consensus estimate of -$43.6 billion. All of the decline was in the goods trade balance. On a 12-month total basis, the trade deficit narrowed by $10.6 billion to -$623.8 billion, its lowest level in a year. The trade gap with China shrank to -$357.7 billion, the least since June 2017.

Of Note

Boeing's largest 737 MAX supplier, Spirit AeroSystems, announced that it will layoff 2,800 workers later this month. The decision follows Boeing’s announcement in mid-December that it will stop building the troubled jet now.

Market Indices Week of 1/10

S&P 5000.9%
Small Caps-0.2%
Intl. Developed-0.1%
Intl. Emerging0.9%
Commodities-0.8%
U.S. Bond Market-0.1%
10-Year Treas. Yield1.82%
US Dollar0.5%
WTI Oil ($/bl)$59
Gold ($/oz)$1,557

The Week Ahead

  • CPI/PPI
  • Retail Sales
  • Industrial Production
  • Housing Starts
  • Small Business Optimism

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