Week in Review 9.6.2019

Markets shook off weak U.S. manufacturing and employment data, to end the holiday-shortened week higher, propelled by easing trade tensions between the U.S. and China, and comments by Fed Chair Jay Powell.On Thursday, the U.S. and China announced plans to restart face-to-face talks in October. While there is no guarantee that this round of talks will be any more successful than prior rounds, markets were heartened by the fact that the two sides are at least willing to engage. As signs of slowing in both countries increase, so to might the desire to normalize trade relations.

In a response to slowing conditions, China’s central bank cut the reserve ratio for banks by 0.5%. The move marked the seventh cut since 2018, and largest during the current easing cycle. The move will provide ~$126B to help stimulate the economy. Whether or not the increase in liquidity actually spurs economic growth remains to be seen. Much like in the U.S., trade-related uncertainty, not access to capital, currently appears to be the largest hindrance to growth.

Speaking at a conference in Switzerland, Fed Chair Jay Powell stated that the most likely outlook for both the U.S. and global economy is continued moderate growth. However, he indicated that the central bank is monitoring “significant risks” and will “act as appropriate to sustain this expansion.” Market expectations for another 0.25% rate cut at the Fed’s September meeting currently stand at 90%.