The US-China trade situation has the power to upset all markets

Outlook:

We get payrolls at the end of this week, always an indicator with more muscle than it deserves, considering the count is just plain wrong. "Economists surveyed by The Wall Street Journal are expecting a solid report for November, with nonfarm payrolls increasing by a brisk 187,000, the unemployment rate holding steady at 3.6% and average hourly earnings up 3% from November 2018. Such an outcome would reassure investors that the U.S. economy has plenty of momentum to weather the global slowdown following three rate cuts by the Federal Reserve this year."

We continue to say the unemployment count and even the underemployment count are just plain wrong. The true, actual unemployment rate is far higher, which is why wages are stagnant. The pool of unemployed may be unqualified due to bad education, bad attitude, drugs, and other serious drawbacks, but the streets are full of non-working persons.

Before payrolls, today it's the Markit PMI and ISM Nov manufacturing index, forecast improving to 49.4 from 48.2, according to the WSJ. Wednesday brings the ISM nonmanufacturing index, expected "to remain firmly in expansion at 54.5." Thursday brings German factory orders for Oct, and Friday brings German industrial production.

Data is always nice to have, but as usual, the US-China trade situation has the power to upset all markets. China wants the US not only to halt the Dec 15 tariffs, but also to roll back other existing tariffs. No roll-back, no deal. The press is willing to accept PR from both sides that the talks are going well, but that's obviously not true, and why the trading universe is willing to be snookered remains a mystery.

As for the US economy at large, the US consumer is still the global driver. Internet and phone sales on Black Friday were $7.4 billion, not quite to last year's level but extremely good, and there's still "Cyber Monday" to go. Adobe Analytics predicts a 19% gain over last year in this category.

What's the forecast? More of the same. We won't hear about China while Trump is in London, but we continue to think the trade war holds the key. Assuming the same risk-off attitude toward trade deal failure, don't short the dollar.

Politics: Over the holiday, Trump visited Afghanistan for the shortest (and safest) possible visit, and claims the Taliban wants peace talks. Yeah, sure.

The Judiciary Committee invited Trump and his lawyers to participate in impeachment hearings this week—following much gnashing of teeth about the president not being allowed to face and question his accusers—but the White House has now declined.

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