U.S. Consumer: No Sale

U.S. Consumer: No Sale

U.S. consumers had a downbeat December; China-U.S. trade talks were set to reconvene in Washington; Mexico's Pemex got yet more help; U.K. clothiers discounted deeply, pre-Brexit


"China and the U.S. are inseparable. They both do well or they both get hurt. Cooperation is the best choice."
China's President Xi Jinping

U.S. Consumer:  No sale

Retail sales figures for December, delayed due to the partial U.S. government shutdown, weren't worth the wait for those seeking good news. Sales at stores, restaurants and online fell a combined 1.2% from November, the biggest monthly drop since September 2009.

Matthew Shay, head of the National Retail Federation said anxiety about trade and financial markets appeared to affect consumers "more than we expected”. Of particular note: online sales fell -3.9% since November, the biggest monthly decline since November 2008, and were up only 3.7% from December 2017, sparking skepticism about the figures' accuracy. Either way, Fed Governor and voting member of the rate-setting FOMC Lael Brainerd noted that the report "certainly caught my eye".

The questions about accuracy also blunted the impact of disappointing factory production figures, which shrank -0.6% in January from a downwardly-revised 0.1% gain in November.
 

China: Trade talks wrap for now

China and the U.S. moved toward finding common ground in the meetings that ended Friday.  China's Xinhua news agency reported the teams "reached consensus in principle on major issues", while China's President Xi stated the meetings "achieved important progress".

The official statement from the U.S. at the end of the week's session stated: "both sides will continue working on all outstanding issues" in advance of a U.S. self-imposed deadline of March 1, after which 10% U.S. tariffs on some Chinese goods are scheduled to rise to 25%.

U.S. trade representative Robert Lighthizer said, "We have additional work to do but we are hopeful". Another round of talks is expected to take place shortly in the U.S.
 

Mexico: Pemex gets help

The state-owned oil company, suffering from decades of underinvestment, is scheduled to get some long-awaited help to get back on its feet. Tax relief over and above the cuts already promised by incoming president Andrés Manuel López Obrador ("AMLO") bring the tax savings to 15 billion Mexican pesos (about $770 million) this year and 30 billion pesos in 2020. The deductions add to the 25 billion peso ($1.3 billion) capital injection already included in Mexico's 2019 budget, as well as other measures.  In exchange, Pemex has assured the government it will not issue any fresh debt this year beyond its need to refinance current debt outstanding.
 

U.K: Bracing for Brexit

Retail sales in the U.K. rose the fastest in six months, as heavy discounts on clothing drew consumers to shops. Some observers suggested the discounts were motivated by the need to make money from existing inventory while consumers were still motivated to buy ahead of the impending unknown state of affairs after the March 29 Brexit deadline, deal or no. Overall, excluding auto fuel, the volume of goods sold and online rose 1.2% from December.

The housing sector saw no such spike in volume, despite the headline price index falling for a fourth consecutive month in January as measures of new enquiries, sales and listings declined. "Resolution of the Brexit negotiations is widely seen as critical to encouraging potential buyers back into the market", according to industry source Royal Institute of Chartered Surveyors.

 


All data:  Source Bloomberg, as of February 15, 2019, unless otherwise specified.

 

Definitions:

The Federal Open Market Committee (FOMC) is a policy-making body of the Federal Reserve System (Fed) which is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

Petróleos Mexicanos, or Pemex, is Mexico's state-owned petroleum company, created in 1938 via the nationalization and expropriation of all private, foreign, and domestic oil companies at that time.

 

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