Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

A Rather Dull Week

Despite an injunction issued by a Chinese court against the sale of iPhones, stocks were off and running at the open Monday morning. That was partly due to the conditional release of Chinese Executive Meng Wenzhou and some cheerleading from the likes of JP Morgan and Goldman Sachs regarding the “oversold” nature of stocks.

As the week wore on, we saw the rally fade – again. Concerns over global growth and the distinct possibility of a US government shutdown resurfaced to dominate the trading action. Draghi in particular stirred things up when, in a policy meeting Wednesday night, he declared an end to QE (i.e., bond purchases), vowing to keep rates low until a hike next December. He cited the problems in France, the overall economy, and a coincident drop in inflation. It was, by all accounts, a mixed message – and one whose rationale was hard to understand, at least for those of us here in America. We have yet to comprehend why a central bank would tighten monetary policy in the face of economic challenges. At any rate, stocks finished the week in mixed fashion as well. The NASDAQ was a bit higher while the Dow headed towards its lowest close since July.

The economic data was slim, and seemingly had little effect on the markets, perhaps because it blended well with ongoing themes. Inflation in November was more subdued, as reflected in a CPI of 0.0%, PPI of 0.1%, Import Prices of -1.6%, and slightly slower growth in real wages. Retail sales were “okay” at 0.2% MoM, compared to last month’s 1.1% gain. The big news, in my opinion, was the record-smashing $204.9 billion budget deficit for the month of November. That alone (without December) puts the US at an $859.43 billion deficit for the 2018 calendar year, which is up 30.7% from the same period in 2017. The increase will of course manifest itself in either higher taxes or more debt. At present, the US government is going for the latter, with somewhere north of $460 billion in US Treasuries being auctioned between now and January of next year.

Away from all that, Treasuries finished a little lower on the week, perhaps indicating that the Fed-induced rotation may be over. Draghi’s comments influenced a decline (perhaps deliberate) in the euro. This helped the dollar look much better than it should. In fact, it looks poised to break out above its previous intra-day peak of 97.69. This hasn’t spooked metals investors, who at this point may have a growing (but not yet equal) contempt for both currencies. Both gold and silver saw some profit taking from previous week gains, yet remained comfortably within bullish territory on the charts. That’s a first for the last five years heading into year-end. Next week we’ll hear policy decisions from the Fed, the BoE, and the BoJ, along with some post-storm housing data for the month of November.

Best Regards,

David Burgess
VP Investment Management