Week in Review 8.2.2019

August 5, 2019

Week in Review

Week Ending: Friday, August 2, 2019

Recap & Commentary

Markets ended the week lower, with the S&P 500 suffering its largest weekly decline since December. Investors were disappointed by Fed commentary regarding the possibility of future rate cuts and rattled by an unexpected increase in trade tensions between the U.S. and China.After weeks of speculation, the Federal Reserve announced a 0.25% rate cut, the first in a decade, in response to “the implications of global developments for the economic outlook as well as muted inflation pressures.” The move was widely expected. Speaking after the meeting, Fed Chair Jay Powell suggested that the Fed rate cut was a “mid-term policy adjustment”, and “not the beginning of a long series of rate cuts”. Markets were disappointed, as expectations for three rate cuts by year end had stood at 50% just prior to the meeting. Following the meeting, those expectations plunged to 8%.

U.S. and Chinese trade negotiators held their first face-to-face meetings since previous talks broke down in May. The meetings produced little more than a commitment to hold further talks in September. The following day, President Trump announced his intention to impose a new 10% tariff on $300B of Chinese goods beginning Sept. 1. China in turn threatened its own countermeasures. Markets were unnerved by the unexpected increase in trade tensions.

Economic Bullet Points

July Employment — 164K jobs were added in July, right in-line with the 165K economist expectation and the Federal Reserve’s characterization of the labor market as “strong.” Additionally, the unemployment rate held steady at 3.7%, due to an offsetting increase in labor force participation, and average hourly earnings rose 0.3%, which improved the annualized change to 3.2%. Altogether, the July data suggests that below-target inflation is poised to continue.International Trade — The trade deficit narrowed a scant $0.2B in June, but only because imports fell more than exports, which is not a sustainable path. US trade is drying up with exports down roughly -$7B and imports down -$5.3B from 2018 highs.

US Manufacturing activity continued to weaken in July according to figures from several major data providers. This trend is likely to persist amid slowing global growth and marked trade policy uncertainties.

Personal Income & Outlays — Personal income rose 0.4% in June, matching expectations. However, personal consumption expenditures rose only 0.3%, the slowest pace for the data point in four months. Year-over-year, US real disposable income has risen 3.3%, its slowest pace since November 2017, which could be hinting at a possible softening in consumer spending in coming periods.

Consumer Confidence — At 98.4, consumer sentiment remained elevated in July. Confidence has been resilient in the face of trade uncertainty, but Trump’s late-week announcement declaring that he plans to impose an additional 10% tariff on $300 billion of Chinese goods, effective Sept. 1, could be a concern.

Of Note

Euro Zone GDP growth slowed to 0.2% in the second quarter, down from 0.4% in the first quarter. The slower growth came despite unemployment falling to an 11-year low of 7.5%.
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Market Indices Week of 8/2

S&P 500 -3.1%
Small Caps -2.9%
Intl. Developed -1.1%
Intl. Emerging -2.3%
Commodities -1.9%
U.S. Bond Market 0.9%
10-Year Treas. Yield 1.85%
US Dollar 0.1%
WTI Oil ($/bl) $55
Gold ($/oz) $1,421

The Week Ahead

  • PPI
  • PMI/ISM Services Index
  • Consumer Credit
  • Jobless Claims

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