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  • October 14, 2019

Week in Review

Week Ending: Friday, October 11, 2019

Recap & Commentary

Stocks snapped their three-week losing streak to end higher, thanks to positive developments in trade talks between the U.S. and China, and improved optimism surrounding Brexit negotiations.

On Friday, the U.S. and China announced that they had agreed in principle to a partial trade deal. Dubbed “Phase One” by President Trump, the deal will see China buy $40-50B of U.S. agricultural products over the next two years, better protect intellectual property rights, and allow greater access to foreign financial companies. In exchange, the U.S. will not raise tariffs from 25% to 30% on $250B of Chinese goods starting October 15. Specific details still need to be worked out, but the deal is expected to be finalized within four to five weeks. Unaddressed in the current deal were some of the thornier issues including China’s practice of technology theft and predatory regulation of U.S. companies.

News that U.K. PM Boris Johnson and his Irish counterpart held Brexit talks on Friday described as “very promising” led European stocks to record their best day since January. While the actual breakthrough was harder to discern, financial markets welcomed the fact that both leaders felt the meeting was constructive. Over the weekend, the UK and EU held further negotiations in advance of a summit to be held later this week. Despite some progress, both sides said that a significant amount of work remains to be done to secure a deal. Johnson is particularly eager to secure a deal before the end of the week so as to avoid having to ask the EU for an extension, something he is loathe to do.

Economic Bullet Points

Consumer Price Index – September CPI was flat from August, matching consensus expectations. Core CPI rose a less than expected 0.1% as a decrease in prices for vehicles and apparel was offset by increases in prices of medical care and rents, amongst others, resulting in a flat inflation outlook. On a year-over-year basis headline inflation rose 1.7%, while core inflation rose 2.4%. Current inflation levels are unlikely to dissuade the Fed from making additional rate cuts.

Consumer Credit – Revolving credit, reflecting credit card debt, fell in August after rising in July. The decline suggests that consumers are tightening their budgets and paying off balances. Non-revolving credit, reflecting student loan debt and vehicle financing, increased sharply from July.

Consumer Sentiment – Consumer sentiment rose four points to 96, exceeding consensus expectations. Consumers are seeing higher income gains coupled with low inflation which has boosted expectations for real income to its highest level in nearly 20 years.

Jobless Claims – Despite slowing job growth, layoffs remain near all-time lows. Jobless claims for the week fell by -10k to 210k.

Of Note

In an effort to keep U.S. funding markets calm, the Fed announced that it will purchase $60B of short-term Treasury bills through the end of 2Q20. The move is designed to improve the bank’s control over the benchmark interest rate it uses to guide monetary policy and avoid a repeat of the turmoil seen in money markets last month when overnight rates spiked to as high as 10%.

Market Indices Week of 10/11

S&P 5000.6%
Small Caps0.7%
Intl. Developed0.4%
Intl. Emerging0.0%
Commodities1.2%
U.S. Bond Market-0.7%
10-Year Treas. Yield1.73%
US Dollar-0.5%
WTI Oil ($/bl)$55
Gold ($/oz)$1,483

The Week Ahead

  • Retail Sales
  • Housing Starts
  • Industrial Production
  • Leading Economic Indicators
  • Regional Manufacturing Data

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