Trump announced that he will be signing the Phase One deal with China on January 15. China state-sponsored media has reaffirmed that Phase One is in the final stage of the timeline but cautioned the delicacy of the situation. Negotiations quickly deteriorated last May, with both sides claiming backtracking and undermining by the other. Events then transpired to an all-out trade war. We know anything can happen this week. Even with the signed Phase One deal, roughly half ($250 billion) of Chinese goods will still have a 25% tariff rate while another $120 billion will have a 7.5% tariff rate.
Tensions in the Middle East flared again as demonstrators, believed to be supported by Iran, attacked the US embassy in Iraq. US forces retaliated with an air strike, killing Iranian general Soleimani and other Iran-backed militia members. Soleimani was labeled a terrorist by the Pentagon prior to the strike. Iranian President Rouhani called the strike a “gruesome crime,” vowing revenge. Iran responded last week by launching missiles at US military bases in Iraq, although there was minimal reported damage and no reported casualties or deaths. Iran also “unintentionally” shot down a Ukrainian commercial plane, killing all 176 on board and sparking Iranian protests against the regime.
Trump’s address in response to the missile attacks was of diplomatic de-escalation, calling for increased sanctions, NATO intervention, and coordinated action by major players such as Europe, Russia, and China to check Iranian aggression. The beginning of the year has been a roller coaster for oil, climbing to $63.27/barrel on US-Iranian war fears, only to drop precipitously to $59.61 Thursday following Trump’s announcement. The concern for market participants and consumers was Middle East unrest leading to another energy crisis, but that appears unlikely at this point.
ISM non-manufacturing index hit high-end consensus estimates. ADP employment numbers bounced back in December with prior month numbers also revised sharply upward. 145,000 jobs were added in December, within the consensus estimate. The unemployment rate held steady at 3.5%. Equities have been mixed so far this year with emerging markets leading the way after a lackluster 2019.
This week will feature releases on CPI, PPI, retail sales, housing starts, and consumer sentiment.
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