Trump & House Democrats Just Reached An Agreement On USMCA Trade Deal

Plus, China expects the U.S. to delay the next round of tariff increases, House Democrats just announced two articles of impeachment against Trump, and department stores are in trouble.

The major indexes were little changed this morning with the Dow trading 25 points, or 0.1%, higher. The S&P 500 added 0.1%, while the Nasdaq gained 0.3%.

Chinese officials are expecting the U.S. to delay the tariff increase set to go into effect on December 15 as negotiations between the two countries on the phase one trade deal drag on. The Wall Street Journal reported that the countries “are laying the groundwork” for the Trump administration to hold off on unleashing the increased tariffs on $156 billion in Chinese goods. While the Trump administration hasn’t announced any postponement for the tariffs, Agriculture Secretary Sonny Perdue said yesterday that he believes there will be “some backing away.”

In other trade news, House Democrats and the Trump administration have reached an agreement to move forward with the White House’s NAFTA replacement. The two sides have worked for more than a year to resolve concerns about enforcement tools for labor and environmental standards under the new United States-Mexico-Canada Agreement, or USMCA. Robert Lighthizer and Jared Kushner will travel to Mexico City today to finalize the changes along with Canada’s Chrystia Freeland. After that, the Trump administration will need to submit ratifying legislation to Congress for the House to move forward with approving the agreement. House Speaker Nancy Pelosi said the new agreement is “a victory for America’s workers and it’s one we take great pride in advancing.” President Donald Trump tweeted this morning that the USMCA was “looking good,” and said “Looking like very good Democrat support for USMCA. That would be great for our Country!”

But it wasn’t all good news for Trump with the Democrats. This morning, House Democrats announced two specific articles of impeachment—abuse of power and obstruction of Congress—against Trump that will be voted on by the full House next week. Judiciary Chairman Jerrold Nadler, alongside House Speaker Pelosi, and the chairs of four other panels involved in the impeachment inquiry announced that they are “charging the president of the United States, Donald J.Trump, with committing high crimes and misdemeanors” under the Constitution for his actions to seek foreign help for his re-election and engaging “in unprecedented, categorical and indiscriminate defiance” of Congress’s investigation. “The evidence of the president’s misconduct is overwhelming and uncontested,” said Intelligence Chairman Adam Schiff, adding that it “goes to the heart” of whether the U.S. can conduct a free and fair election in 2020. White House press secretary Stephanie Grisham said in a statement, “The president will address these false charges in the Senate and expects to be fully exonerated, because he did nothing wrong,” while Pelosi said the steps Democrats are taking are necessary to fulfill the obligations of the oath of office lawmakers take “to protect and defend the Constitution of the United States.”

Department stores are in for more trouble as 2019 heads to a close at the end of a decade, according to Goldman Sachs and Moody’s. In a note from yesterday, Goldman lowered its rating on Macy’s shares to Sell, seeing “significant downside” in the retailer’s stock price. “Macy’s sales and operating margins have come under pressure in recent years, and we forecast this to continue,” said Goldman analyst Alexandra Walvis. “Comps are under pressure… and e-commerce growth drivers like mobile and vendor direction have only helped to mask significant under performance in stores.” For its part, Moody’s has cut its operating income growth forecast for the entire department store sector, saying that it expects department store retailers’ profits to slump by 20% in 2019. “Off-price retailers and discounters once again posted robust sales as customers continued to flock to value,” said Moody’s senior credit officer Christina Boni. Boni said that off-price retailers like TJ Maxx and Ross Stores are turning over inventory around two-times as fast as department stores like Dillard’s, JCPenney, Kohl’s, Macy’s, and Nordstrom

In other ratings news, JPMorgan and Netflix both saw their stock’s downgraded today. Keefe Bruyette & Woods downgraded JPMorgan to Market Perform from Outperform, saying that the bank stock’s 37% return in 2019 has been “driven by shares re-rating after the sell-off in the back part of 2018.” “We would like to add shares when valuations are more reasonable, and in our view a Market Perform rating is warranted,” KBW said. As for Netflix, Needham downgraded the streaming pioneer to Underperform from Hold, saying that it anticipates subscriber losses as competition heats up in the streaming space. “We project NFLX will lose 4mm US subs in 2020 at its premium priced tier of $9-$16/month. We believe NFLX must addd a second, lower priced, service to compete with Disney+, Apple+, Hulu, CBS All Access and Peacock, each of which have $5-$7/month choices,” Needham analyst Laura Martin wrote in a note. “Since NFLX’s balance sheet cannot withstand lower revenue (our view), we recommend a 6-8 minute/hour ad load to supplement a $5-$7/month consumer fee.”

Stocks We’re Watching

XBiotech (NASDAQ: XBIT): Shares of this biotech are up more than 77% in the last week after it inked an agreement with Johnson & Johnson unit Janssen Biotech for global rights to XBiotech’s anti-inflammatory candidate, bermekimab. “We are proud that Janssen has chosen bermekimab as an agent it believes could have an important impact,” said XBiotech President & CEO John Simard. “We believe their acquisition will enable recognition and increase awareness of the full potential of this first-in-class therapeutic. This transaction also provides us the opportunity to showcase our powerful True Human antibody discovery platform, which we are now utilizing to pursue next generation anti-Il-1⍺ antibody therapeutics to treat multiple areas of unmet need outside of dermatology.”

PDL BioPharma (NASDAQ: PDLI): PDL BioPharma shares jumped as much as 24% yesterday following its announcement the it has completed a strategic review that it started in September, and said that it plans to “halt the execution of its growth strategy, cease additional strategic investments, and pursue a formal process to unlock value by monetizing the Company’s assets and returning net proceeds to shareholders.” PDL President and CEO said, “Today’s announcement reflects our efforts to continually assess and do what is best for our shareholders. Although there is potential to build significant value with the Company’s current healthcare growth strategy, we recognize the inherent execution risk and the long-term nature of such an approach. After a careful and thorough review of our strategic options, we have concluded that a monetization process will unlock value more quickly and with greater certainty for the benefit of all PDL shareholders. Accordingly, we will cease additional strategic investments and instead will look to monetize our high-quality asset portfolio and distribute net proceeds to our shareholders.”

X