Trade Optimism Lifts Stocks, But 2018 Ends in Red

Equities around the world rose Monday as possible progress in resolving the trade dispute between the United States and China engendered some investor optimism in what has been a punishing end of year for markets.

The U.S. benchmark S&P 500 stock index advanced in light trading volume after U.S. President Donald Trump said he held a “very good call” with China’s President Xi Jinping on Saturday to discuss trade and said “big progress” was being made.

Chinese state media were more reserved, saying Xi hoped the negotiating teams could meet each other halfway and reach an agreement that was mutually beneficial.

The rise in U.S. equities mirrored that in Asian and European markets, which were also buoyed by trade optimism.

Despite Monday’s advance, equities ended the year largely in the red, victims of investor anxiety over trade tensions and slowing economic growth. Asian and European shares had been sluggish for much of the year, and in recent months, U.S. stocks followed suit.

“If the European economy continues to decelerate and the Chinese economy decelerates because of tariffs, there is definitely going to be spillover to the United States,” said Shannon Saccocia, chief investment officer at Boston Private.

The S&P 500 dropped more than 9 percent in December, its largest decline since the Great Depression. For the year, the index slid more than 6 percent, its biggest drop since the 2008 financial crisis.

Asia-Pacific shares outside Japan ended down 16 percent for the year, while the STOXX 600 was more than 13 percent lower.

MSCI’s gauge of stocks around the globe fell 11.1 percent in 2018.

A further blow to the Chinese economy could spur a quicker resolution to the U.S.-China trade dispute and thus boost global equities, Saccocia said. Survey data on Monday showed Chinese manufacturing activity contracting for the first time in two years even as the service sector improved.

On Monday, the Dow Jones Industrial Average rose 265.06 points, or 1.15 percent, to 23,327.46, the S&P 500 gained 21.11 points, or 0.85 percent, to 2,506.85 and the Nasdaq Composite added 50.76 points, or 0.77 percent, to 6,635.28.

MSCI’s emerging markets index rose 0.32 percent, while the MSCI world stock index gained 0.66 percent.

No more hikes

Yields on U.S. Treasuries fell on Monday, keeping with the trend over the past two months as investors moved to lower-risk investments.

Benchmark 10-year notes last rose 15/32 in price to yield 2.686 percent, compared with 2.738 percent late Friday.

The fall in Treasury yields reflects expectations of a slowdown, if not a pause altogether, in the Federal Reserve’s progression of interest-rate hikes.

The precipitous drop in yields has undermined the U.S. dollar in recent weeks. The dollar index, which measures the greenback against a basket of six other currencies, was down 0.3 percent and on track to end December with a loss. It is, however, still set for its highest yearly percentage gain since 2015.

On Monday, the dollar fell to a six-month low against the yen.

The euro was up 0.2 percent to $1.1459, on track to end the year down nearly 5 percent against the dollar.

Oil posted its first year of losses since 2015, with Brent crude futures down 19.5 percent and U.S. West Texas Intermediate crude futures down 24.8 percent.

On Monday, Brent crude settled 59 cents higher, or 1.11 percent, at $53.80 a barrel. U.S. crude settled up 8 cents, or 0.18 percent, at $45.41 a barrel.

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China Factory Activity Shrinks for First Time in 2 Years

China’s factory activity shrank in December for the first time in more than two years, an official survey showed Monday, intensifying pressure on Beijing to reverse an economic slowdown as it enters trade talks with the Trump administration.

The purchasing managers’ index of the National Bureau of Statistics and an industry group, the China Federation of Logistics & Purchasing, fell to 49.4 from November’s 50.0 on a 100-point scale. Any reading below 50 shows that activity is contracting. The December figure was the lowest since February 2016 and the first drop since July 2016.

 

In the quarter that ended in September, China’s economic growth sank to a post-global crisis low of 6.5 percent compared with a year earlier. The slowdown occurred despite government efforts to stem the downturn by ordering banks to lend more and by boosting spending on public works construction.

 

Forecasters expect annual growth of about 6.5 percent, down slightly from 2017’s 6.7 percent. But some industry segments, including auto and real estate sales, have suffered more serious declines.

 

“Downward pressure on the economy is still large,” economist Zhang Liqun said in a statement issued with the PMI.

 

Overall orders and exports both contracted, indicating that Chinese factories are suffering from weak demand at home and abroad. Exports to the United States kept growing at double-digit monthly rates through late 2018 despite President Donald Trump’s punitive tariffs. But growth in exports to the rest of the world fell sharply in November and forecasters expect American demand to weaken in early 2019.

 

That adds to complications for Chinese leaders who are trying to reverse a broad economic slowdown and avert politically dangerous job losses.

 

Chinese and U.S. envoys are due to meet in early January for negotiations that are intended to resolve their economically threatening trade war. Over the weekend, Trump sounded an optimistic note, tweeting that he had spoken with President Xi Jinping by phone.

 

“Deal is moving along very well,” Trump tweeted. “If made, it will be very comprehensive, covering all subjects, areas and points of dispute. Big progress being made!”

 

But economists say the 90-day moratorium on new penalties that was agreed to by Trump and Xi on Dec. 1 is likely too little time to resolve their sprawling dispute.

 

Chinese economic activity already was weakening after Beijing tightened controls on bank lending in late 2017 to cool a debt boom. The downturn was more abrupt than expected, which prompted regulators to shift course and ease credit controls. But they moved gradually to avoid reigniting a rise in debt. Their measures have yet to put a floor under declining growth.

 

Chinese leaders promised at an annual economic planning meeting in mid-December to shore up growth with tax cuts, easier lending for entrepreneurs and other steps.

 

 

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Elizabeth Warren Makes Big Move Toward 2020 US Presidential Run

Sen. Elizabeth Warren on Monday took the first major step toward launching a widely anticipated campaign for the presidency, hoping her reputation as a populist fighter can help her navigate a Democratic field that could include nearly two dozen candidates.

“No matter what our differences, most of us want the same thing,” the 69-year-old Massachusetts Democrat said in a video that highlights her family’s history in Oklahoma. “To be able to work hard, play by the same set of rules and take care of the people we love. That’s what I’m fighting for and that’s why today I’m launching an exploratory committee for president.”

Warren burst onto the national scene a decade ago during the financial crisis with calls for greater consumer protections. She quickly became one of the party’s more prominent liberals even as she sometimes fought with Obama administration officials over their response to the market turmoil.

Now, as a likely presidential contender, she is making an appeal to the party’s base. Her video notes the economic challenges facing people of color along with images of a women’s march and Warren’s participation at an LGBT event.

In an email to supporters, Warren said she’d more formally announce a campaign plan early in 2019.

Warren is the most prominent Democrat yet to make a move toward a presidential bid and has long been a favorite target of President Donald Trump.

In mid-December, former Obama housing chief Julian Castro also announced a presidential exploratory committee, which legally allows potential candidates to begin raising money. Outgoing Maryland Rep. John Delaney is the only Democrat so far to have formally announced a presidential campaign.

But that’s likely to change quickly in the new year as other leading Democrats take steps toward White House runs.

Warren enters a Democratic field that’s shaping up as the most crowded in decades, with many of her Senate colleagues openly weighing their own campaigns, as well as governors, mayors and other prominent citizens. One of her most significant competitors could be Sen. Bernie Sanders, a Vermont independent who is eyeing another presidential run harnessing the same populist rhetoric.

She must also move past a widely panned October release of a DNA test meant to bolster her claim to Native American heritage. The move was intended to rebut Trump’s taunts of Warren as “Pocahontas.” Instead, her use of a genetic test to prove ethnicity spurred controversy that seemed to blunt any argument she sought to make. There was no direct mention of it in the video released Monday.

Warren has the benefit of higher name recognition than many others in the Democratic mix for 2020, thanks to her years as a prominent critic of Wall Street who originally conceived of what became the government’s Consumer Financial Protection Bureau.

She now faces an arduous battle to raise money and capture Democratic primary voters’ attention before Iowa casts its first vote in more than a year. She has an advantage in the $12.5 million left over from her 2018 re-election campaign that she could use for a presidential run.

Warren’s campaign is likely to revolve around the same theme she’s woven into speeches and policy proposals in recent years: battling special interests, paying mind to the nexus between racial and economic inequities.

“America’s middle class is under attack,” Warren said in the video. “How did we get here? Billionaires and big corporations decided they wanted more of the pie. And they enlisted politicians to cut them a fatter slice.”

 

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Trump Defends His Planned Troop Withdrawal from Syria

U.S. President Donald Trump on Monday defended his planned withdrawal of all 2,000 American troops from Syria, attacking critics of the action as chronic complainers.

In a string of Twitter remarks, Trump said, “If anybody but Donald Trump did what I did in Syria, which was an ISIS (Islamic State) loaded mess when I became President, they would be a national hero.”

He said the Islamic State terrorist group that once claimed Raqqa in northern Syria as the capital of its caliphate, “is mostly gone” from Syria and “we’re slowly sending our troops back home to be with their families, while at the same time fighting ISIS remnants.”

Trump stunned U.S. national security aides and lawmakers, Republicans and Democrats alike, by announcing December 19 that he was withdrawing the U.S. troops who had been instrumental in removing most of the jihadist group from northeast Syria and aided Kurdish fighters in their fight against the insurgents.

Critics of the withdrawal said that removing U.S. troops could lead to a resurgence of Islamic State operations.

One critic of the move, Republican Senator Lindsey Graham, normally a Trump loyalist, met with the U.S. leader Sunday and later said the president remains committed to defeating Islamic State. Graham suggested Trump may slow his planned 30-day withdrawal, but the White House has not commented on Graham’s interpretation of his talks with Trump.

“I think we’re in a pause situation where we are re-evaluating what’s the best way to achieve the president’s objective of having (other countries) pay more and do more” in the war on terrorism, Graham said.

In his Monday tweets, Trump said, “I campaigned on getting out of Syria and other places. Now when I start getting out the Fake News Media, or some failed Generals who were unable to do the job before I arrived, like to complain about me & my tactics, which are working. Just doing what I said I was going to do! Except the results are FAR BETTER than I ever said they were going to be! I campaigned against the NEVER ENDING WARS, remember!”

Trump contended, “I am the only person in America who could say that, “I’m bringing our great troops back home, with victory,” and get BAD press. It is Fake News and Pundits who have FAILED for years that are doing the complaining. If I stayed in Endless Wars forever, they would still be unhappy!”

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Kenyan GDP Growth at 6 Percent in Third Quarter 2018

Kenya’s economy expanded faster in the third quarter of this year than in the same period last year due to strong performance in the agriculture and construction sectors, the statistics office said on Monday.

The Kenya National Bureau of Statistics said the economy grew 6 percent in the third quarter of 2018, compared with 4.7 percent in the same period in 2017.

It said the agriculture sector expanded by 5.2 percent compared with 3.7 percent in the third quarter of 2017, helped by better weather.

“Prices of key food crops remained low during the quarter compared to the corresponding quarter of 2017, an indication of relative stability in supply,” KNBS said.

Manufacturing grew by 3.2 percent from a 0.1 percent contraction in the third quarter of 2017, KNBS said.

It said that the electricity and water supply sector grew by 8.5 percent from 4.5 percent in the third quarter of 2017, mainly due to a big increase in the generation of electricity from hydro and geothermal sources.

Gross foreign reserves increased to 1,222.5 billion from 1,085.6 billion in the same period of last year.

The current account deficit narrowed by 23 percent to 116 billion Kenyan shillings ($1.14 billion), it said.

This was mainly due to lower imports of food and higher value of exports of goods and services.

The government forecasts that the economy will expand by 6.2 percent in 2019, up from a forecast 6.0 percent this year.

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The Euro Currency Turns 20 Years Old on Tuesday

The euro currency turns 20 years old on January 1, surviving two tumultuous decades and becoming the world’s No. 2 currency.

After 20 years, the euro has become a fixture in financial markets, although it remains behind the dollar, which dominates the world’s market.

The euro has weathered several major challenges, including difficulties at its launch, the 2008 financial crisis, and a eurozone debt crisis that culminated in bailouts of several countries.

Those crises tested the unity of the eurozone, the 19 European Union countries that use the euro. While some analysts say the turmoil and the euro’s resilience has strengthened the currency and made it less susceptible to future troubles, other observers say the euro will remain fragile unless there is more eurozone integration.

Beginnings 

The euro was born on January 1, 1999, existing initially only as a virtual currency used in financial transactions. Europeans began using the currency in their wallets three years later when the first Euro notes and coins were introduced.

At that time, only 11 member states were using the currency and had to qualify by meeting the requirements for limits on debt, deficits and inflation. EU members Britain and Denmark received opt-outs ahead of the currency’s creation.

The currency is now used by over 340 million people in 19 European Union countries, which are: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

Other EU members are required to join the eurozone when they meet the currency’s monetary requirements.

Popularity

Today, the euro is the most popular than it has ever been over the past two decades, despite the rise of populist movements in several European countries that express skepticism toward the European Union.

In a November survey for the European Central Bank, 64 percent of respondents across the eurozone said the euro was a good thing for their country. Nearly three-quarters of respondents said they thought the euro was a good thing for Europe.

In only two countries — Lithuania and Cyprus — did a majority of people think the euro is a bad thing for their nation.

That is a big contrast to 2010, the year that both Greece and Ireland were receiving international bailout packages, when only 51 percent of respondents thought the euro was a good thing for their country.

Challenges

The euro faced immediate challenges at its beginning with predictions that the European Central Bank (ECB) was too rigid in its policy and that the currency would quickly fail. The currency wasn’t immediately loved in European homes and businesses either with many perceiving its arrival as a price hike on common goods.

Less than two years after the euro was launched — valued at $1.1747 to the U.S. dollar — it had lost 30 percent of its value and was worth just $0.8240 to the U.S. dollar. The ECB was able to intervene to successfully stop the euro from plunging further.

The biggest challenge to the block was the 2008 financial crisis, which then triggered a eurozone debt crisis that culminated in bailouts of several countries.

Tens of billions of euros were loaned to Greece, Ireland, Portugal, Cyprus and Spain, either because those countries ran out of money to save their own banks or because investors no longer wanted to invest in those nations.

The turmoil also highlighted the economic disparity between member states, particularly between the wealthier north and the debt-laden southern nations.

Poorer countries experienced both the advantages and disadvantages to being in the eurozone.

Poorer countries immediately benefited from joining the union, saving trillions of euros due to the lowering borrowing costs the new currency offered.

However, during times of economic downturn, they had fewer options to reverse the turmoil.

Typically in a financial crisis, a country’s currency would plunge, making its goods more competitive and allowing the economy to stabilize. But in the eurozone, the currency in poorer countries cannot devalue because stronger economies like Germany keep it higher.

Experts said the turbulent times of the debt crisis exposed some of the original flaws of the euro project.

However, the euro survived the financial crisis through a combination of steps from the ECB that included negative interest rates, trillions of euros in cheap loans to banks and buying more than 2.6 trillion euros in government and corporate bonds.

Future

ECB chief Mario Draghi was credited with saving the euro in 2012 when he said the bank would do “whatever it takes” to preserve the currency.

Some experts say the flexibility of the bank proves it is able to weather financial challenges and say the turmoil of the past two decades have left the ECB better able to deal with future crises.

However, other observers say that the 19 single currency nations have not done enough to carry out political reforms necessary to better enable the countries to work together on fiscal policy and to prepare for future downturns.

Proposals for greater coordination, including a eurozone banking union as well as a eurozone budget are still in the planning phases.

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