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  • January 14, 2019

Week in Review

Week Ending: January 11, 2019

Recap & Commentary

Markets recorded solid gains buoyed by optimism regarding U.S./China trade talks and renewed supportive comments by Fed Chair Jay Powell. Last year’s underperforming asset classes- emerging markets and small caps- and sectors- energy, industrials, communication services- largely led the way.

U.S./China trade talks, initially scheduled for two days, were extended to three, as the two sides appeared to make strides on a number of issues.  Following the conclusion of the talks, reports indicated that the two sides are working to schedule higher-level talks for later this month.

Speaking before the Economic Club of Washington, Fed Chair Jay Powell reiterated his welcome message from last week that the Fed will be patient moving forward with monetary policy. That message was corroborated by the minutes from the Fed’s December FOMC meeting, which showed that participants were more cautious than the statement released at the end of the meeting implied.

According to the minutes, participants “expressed that recent developments, including the volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier.”  As a result, “many participants expressed the view that, especially in an environment of muted inflation pressures, the Committee could afford to be patient about further policy firming.”

Economic Bullet Points

Inflation—Headline Consumer Price Index inflation (CPI) fell a seasonally adjusted -0.1% in December, driven by a -3.5% decrease in energy costs as retail gasoline prices fell -7.5% on lower crude prices. Y/Y, headline CPI moderated to 1.9%, marking the first time since August 2017 that it rose by less than 2.0%. Core CPI, however, which excludes volatile energy and food prices, rose 0.2% for the third straight month. Y/Y, core prices are up 2.2%. Both estimates were in-line with economists’ expectations.

Consumer Credit rose a consensus-beating $22.1B in November but slowed slightly vs. a revised $25.0B in October. The gains in this report, coupled with the backdrop of healthy credit standards points to sustainable strength in consumer spending, a plus for the economy.

US Services—the ISM Non-Manufacturing index moderated in December to 57.6 vs. 60.7 a month prior. Despite the decline, the absolute level suggests that the overall economy continues to expand at a solid rate.

Small Business Optimism—the NFIB Small business Optimism Index fell for the fourth consecutive month, fueled by a drop in economic expectations after the recent stock market selloff.

Jobless Claims fell -17K to 216K vs. the 224K estimate—a good print and a positive sign for January employment figures despite the government shutdown.

Of Note

The current government shutdown is now the longest on record. While there hasn’t been any meaningful economic impact thus far, Fed Chair Powell believes that “A longer shutdown…would show up in the data pretty clearly.”

Market Indices Week of 1/11

S&P 500                         2.5%

Small Caps                     4.8%

Intl. Developed              2.8%

Intl. Emerging               3.7%

Commodities                 1.7%

U.S. Bond Market            0.0%

10-Year Treas. Yield         2.70%

US Dollar                          -0.5%

WTI Oil ($/bl)                      $52

Gold ($/oz)                     $1,290

The Week Ahead

  • PPI
  • Retail Sales
  • Housing Market Index
  • Housing Starts
  • Industrial Production
  • Consumer Sentiment
  • Jobless Claims

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