Week in Review
Week Ending: Friday, October 4, 2019
Recap & Commentary
Markets ended the week lower, pressured by disappointing U.S. manufacturing and services sectors data, which renewed fears about a possible recession. However, Friday’s employment report, which saw unemployment fall in September to its lowest level since 1969, helped blunt some of those concerns. Markets also seemed to take a good-news-is-bad approach to the services data, with respect to future Fed rate cuts. At the market close on Friday, expectations for an October rate cut stood at 78%, up from 49%, just a week ago.
Speaking at a conference on Friday, Fed Chair Powell reiterated the Fed’s current views on the economy, without divulging insights into future monetary policy. In describing the current state of the economy, Powel said that it is “in a good place” and that the Fed’s job is to “keep it there as long as possible.”
With the start of third quarter earnings season still a week away, trade will likely be the focal point for markets this upcoming week as the U.S. and China are set to resume face-to-face talks on Thursday and Friday.
Unrelated to recent trade tensions with Europe, the U.S. announced that it will impose tariffs on as much as $7.5B of European exports beginning October 18. Items to be taxed include European aircraft, French wine and cheese, and other goods. The move comes following a ruling by the World Trade Organization (WTO), which declared that European aircraft maker Airbus benefited from years of illegal government subsidies.
Economic Bullet Points
US Manufacturing Data—The PMI Manufacturing Index reported a slightly above contraction reading of 51.1 in September. However, at 47.8, the ISM manufacturing index slid further into negative territory in September after reporting its second consecutive sub-50 reading. Despite decreased trade rhetoric last month, almost all of the subcomponents in both surveys are at, or now below 50, indicating contraction.
US Services Data—At 52.6, the ISM Non-Manufacturing Index fell to a three-year low in September. Similarly, the PMI Services Index release was also soft in September. When combined, current services sector data suggests that the US economic slowdown is no longer isolated to the manufacturing sector.
Construction Spending rose a meager, but consensus matching 0.1% in August. Year-on-year, total construction spending has declined -1.9%, which is its best showing since April. Despite August's strengths, residential spending is down 6.4% annualized, which compares with a year-on-year gain of 4.8 percent for non-residential spending.
US Employment—136K new jobs were added in September. While that represents a slowdown in hiring, the labor market remains tight. Also, the unemployment rate declined to 3.5%, its lowest reading since December 1969.
Discount brokerage firm Charles Schwab announced that it is cutting online trading commissions for stocks, ETFs and options to $0. In response, at least one major competitor announced a similar move. The announcements continued the general trend of fee compression within the financial services industry.
Market Indices Week of 9/27
|U.S. Bond Market||0.7%|
|10-Year Treas. Yield||1.52%|
|WTI Oil ($/bl)||$53|
The Week Ahead
- Consumer Price Index
- Producer Price Index
- Consumer Credit
- Small Business Optimism
- Consumer Sentiment
- Jobless Claims