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Markets Tepid, Trade Deficits Somewhat Lower

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Tuesday, December 6, 2022

As expected, we’re tiptoeing through a pre-market that is looking for a path to follow to make back some of Monday’s losses, but without much to go on. The S&P 500 is now back below 4K following six of seven sessions trading lower. The S&P is flat at this hour, while the Dow is -40 points and the Nasdaq -10. Stuck with flat sails until a wind blows us somewhere.

We did get a Trade Deficit print this morning for the month of October, which sank to its lowest level since June to -$78.2 billion, and deeper than the revised -$74.1 billion for September. Exports fell for the second straight month, -0.7%, to its lowest level since May, while Imports were the highest since June, +0.6%.

Breaking this down further, our trade deficit with China ebbed $6 billion, now sitting at -$26.1 billion: Exports with the second-largest economy in the world gained +$1.4 billion to $13.6 billion. Imports to China fell -$4.6 billion to $39.7 billion. These numbers continue to illustrate to what extent our economy relies on Chinese goods relative to how much we export to the country. Thus, when we hear of negotiations between the two companies — and a lightening of Covid regulations across the Pacific — we see potential goods news.

The most curious thing in our current trading environment is that the markets began pricing in a 50 basis-point (bps) interest rate hike from the Fed a week from tomorrow, and have now spent the last few sessions winding that down. Are market participants looking to shoot higher once the Fed monetary policy is announced? If so, it doesn’t make much sense to sell into the present bearishness. Perhaps this is a hedge against a head-fake 50 bps and another 75 bps drops instead.

But the Fed doesn’t play the game this way. Currently, we’re in a blackout period where voting members do not make appearances to speak on the economy or what the Fed is thinking until after the Fed decision is made. The last time the Fed changed its mind about what it intended to do during the blackout period, it “leaked” the change to the Wall Street Journal. And without economic catalysts on our radar at the present time, we feel chances of something like that this time around is quite low.

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