foxex: Phase One: On

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. U.S. markets jump on Phase One agreement between U.S. and China

2. The latest on the U.K. Parliamentary election

3. Facebook falls on reports of possible FTC injunction

4. Saudi Aramco valuation tops $2 trillion, briefly

5. Big birthday for nation's first national bank

Markets Closed

Dow
28,132.05 +0.79%

S&P
3,168.57 +0.86%

Nasdaq
8,717.32 +0.73%

VIX
13.94 -7.00%

Bitcoin
$7,245.07 +0.47%

US 10-Yr Yield
1.897 +5.98%

Markets Today

U.S. markets climbed to new highs today on news that the U.S. and China have agreed 'in principle' to Phase One of a trade deal. The agreement still needs sign off from President Trump, so anything can happen. However, Trump did indicate that a deal with China was close this morning, which quickly sent markets higher despite starting the session in the red. More on the details of the agreement, below.

Headlines

Shares of Saudi Aramco rose another 10% today, making it the first company to reach a $2 trillion market cap. Saudi Crown Prince Mohammed bin Salman has been aiming for a $2 trillion valuation for the Saudi national oil company since before the IPO launched. Despite the rise, most of the shares purchased, both by retail and institutional investors, were bought by Saudi Arabians, showing continued difficulty drawing in foreign investment.
Christine Lagarde held interest rates steady today in her first rate decision as leader of the European Central Bank. She said the ECB would continue financial asset purchases by the bank "as long as necessary," and that interest rates will remain at present levels or below until the inflation outlook gets close to 2%. Sound familiar?
The number of initial U.S. unemployment filings jumped to 252,000 last week, the highest level in 2 years. This was significantly higher than the 213,000 economists had expected, and up from 203,000 the previous week. It's very important not to read too much into a single data point, but it's worth keeping an eye on this stat to see if this continues.
The Federal Trade Commission is looking into getting a preliminary injunction against Facebook over antitrust concerns. The main issue is how Facebook integrates its different networks and apps. The concern is that this integration move is being done to disadvantage rival company's apps, as well as to make it harder to break Facebook up in an antitrust case.
American Airlines announced that it is pulling 737 Max flights from its schedules until April 7th, 2020, the latest of any airline so far.

Correction: Yesterday we incorrectly called the Georgia Institute of Technology 'Georgia Tech University'. Everyone knows, especially ACC fans, that it's really called Georgia Tech, and it's a top notch school with great student athletes. Our apologies, and Go Yellow Jackets!

Phase One Details

The actual terms of the Phase One agreement between the U.S. and China are still a bit murky, but here are some of the key points, as far as we can tell:

China will commit to annual purchases of between $40-50 billion in U.S. farm products
China will also commit to purchase more U.S. energy and manufactured products
China will not engage in competitive currency devaluation to help its exporters
The U.S. may not impose tariffs on an additional $156 billion in Chinese goods, set to kick in on Sunday, December 15th
The U.S. may cut existing tariffs by as much as half. The U.S. currently imposes 25% tariffs on about $250 billion of Chinese goods and 15% tariffs on an additional $111 billion worth of goods. If China fails to deliver on its promised purchases of U.S. farm products, those tariffs would return to their original levels.

What's not on the table:

Any agreements or terms on intellectual property theft
Any agreement on forced technology transfer
Any agreement on reducing the trade deficit between China and the U.S.

Those sticking points would presumably be addressed later if Phase One does get stamped by Trump and Xi, and if it actually goes as planned. Those are two massive 'ifs', but today's agreement in principle is as good a sign as we have seen in a long time. That good sign pushed the U.S. Dollar down against the Chinese Yuan, which is exactly what the Trump Administration wants.

chart courtesy TradingView

Britain's Big Vote

U.K. voters headed to the polls today in a make or break parliamentary election that could change the course of Brexit and the economic dynamics of the eurozone for years. Today's vote will shape how, or whether, the U.K. will finally exit the European Union after months of parliamentary deadlock over how to execute the result of its 2016 referendum.

Prime Minister Boris Johnson is hoping to make a swift exit from the EU as he promised when he became PM earlier this year. Labour Party leader Jeremy Corbyn would prefer to hold a second vote on the referendum if his party manages to take enough parliamentary seats in today's election.

If Johnson's Conservative party wins and Parliament signs off on his withdrawal agreement, a difficult negotiation over the U.K. and EU's future relationship will begin as the so-called "transition period" comes into effect.

If Labour is victorious, Corbyn would negotiate a softer withdrawal agreement than the one brokered between Johnson and the EU, which has already been rejected by British Parliament, and would attempt to build a new U.K.-EU customs union to ensure a closer alignment to the EU's single market. Under Labour's plan, the revised deal would be put to a referendum, alongside an option to remain, within six months.

At time of writing, exit polls indicate that Boris Johnson's Conservative party will gain a majority, picking up a significant number of seats. Exit polls have fairly wide margins of error, but they can give some indication as to the election's overall result. The British Pound jumped 2% around 5pm EST as those exit polls were released.

Here are some of the other key issues on the table in today's vote, as diagrammed by Al Jazeera:

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chart courtesy YCHARTS

Wynn Resorts and Las Vegas Sands casino companies rose 9.5% and 5.0% respectively. This jump comes after the news that the Chinese government is going to announce a raft of policies to develop the economy of Macau, where the companies have casinos. Graphics card maker Advanced Micro Devices rose 8.1% after news of progress in the trade deal with China and the release of a new graphics card. L Brands and Gap both bounced back today rising 6.8% and 5.3% respectively.

Facebook fell 2.8% after news of more scrutiny and a possible injunction from the FTC. Homebuilders Lennar, D.R. Horton, and PulteGroup fell 2.8%, 2.8%, and 2.7% respectively. It was also a bad day for REITs with Regency Centers, Public Storage, Healthpeak Properties, Welltower, and Extra Space Storage falling 3.0%, 2.7%, 2.7%, 2.5%, 2.4%, respectively.

Word of the Day

Article 50

Article 50 is a clause in the European Union's (EU) Lisbon Treaty that outlines the steps to be taken by a country seeking to leave the bloc voluntarily. Invoking Article 50 kick-starts the formal exit process and serves as a way for countries to officially declare their intention to leave the EU.

Image Source: The First Bank of the United States (Library Company of Philadelphia (www.librarycompany.org) Print Dept. Birch's views [Sn 17a/P.2276.38

Today in History

December 12, 1791

Today in 1791 the first Bank of the United States opened in Philadelphia. The bank, with a capitalization of $10 million, $2 million of which was owned by the government, was the largest corporation of any kind in the U.S. at the time. The bank collected taxes, made loans to the government, issued bank notes, and paid the government's bills. However, it didn't set monetary policy or hold other bank's reserves. The first bank's 20-year charter eventually expired in 1811 without being renewed.

Source: https://www.federalreservehistory.org/essays/first_bank_of_the_us