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Week in Review

Week Ending: Friday, April 5, 2019

Recap & Commentary

Markets ended the week higher, driven primarily by optimism regarding a possible trade deal between the U.S. and China. Friday marked the 7th consecutive day of gains for the S&P 500, the longest such streak since October 2017, and left the index just 1.3% away from its all-time high of 2,931 set last September.

A steady trickle of reports throughout the week suggested that the U.S. and China are making significant progress towards completing a trade deal. Following several days of high-level talks in Washington, President Trump stated that it was premature to announce a date for a trade summit between he and President Xi. However, he intimated that one could be held relatively soon.

With no clear path forward, and seeking to avoid a “hard Brexit”, UK PM May asked the EU for a Brexit extension until June 30. The EU has yet to officially respond, but early reports suggest the response was met with some skepticism. Without an extension, the UK will be forced to leave the EU on April 12.

German manufacturing data fell to its lowest level in six years, raising further concerns about the strength of its economy as well as that of the broader EU.

Economic Commentary

Employment—Payroll growth picked up in March with employers adding 196K new jobs against a 175K consensus estimate, however, the trend in hiring continues to show signs of slowing. The unemployment rate held at 3.8% while wage growth eased. Recent labor data, when coupled with modest inflationary pressures, should keep Fed intervention on hold for a while.

US Manufacturing and Services—US factory data is slowing considerably. Services data, on the other hand, fell to a 20-month low in March. Importantly, data for both measures remains firmly in expansion territory, and consistent with a stable, but slowing economy.

Durable Goods Orders fell -1.6% in February, marking its first decline in four months. Although, after taking revisions into account, headline orders were in line with expectations. Core orders (ex. volatile aircraft data), fell a slight -0.1%. On a Y/Y trend basis, durable goods orders have moderated to 4.5%, while core orders have eased to 3.0%, their slowest rates since 1H 2017. This suggests slower near term output growth.

Retail Sales slipped -0.2% in February. However, the decline follows a revision to January data that more than tripled the first estimate. Control group sales, which feeds into estimates for personal consumption expenditures in the GDP report, fell -0.2% in February. In sum, retail sales data has been mixed in recent months, but weakness in unrevised data may be temporary, given the government shutdown, polar vortex, and timing and size of tax refunds.

Consumer Credit growth was near the low end of expectations but remained steady in February, up $15B following an upward revised $17.7B in January. Revolving and non-revolving credit rose $3.0B and $12.2B, respectively.

Of Note

Branded credit cards are big business. How big? According to American Public Media, last year Delta Air Lines made $3.4B from its American Express SkyMiles credit cards. By 2023, that number is expected to increase to $7B

Market Indices Week of 4/5

S&P 500                            2.1%

Small Caps                       2.8%

Intl. Developed                1.8%

Intl. Emerging                 2.1%

Commodities                  1.6%

U.S. Bond Market           -0.4%

10-Year Treas. Yield         2.50%

US Dollar                          0.1%

WTI Oil ($/bl)                    $63

Gold ($/oz)                        $1,290

The Week Ahead

  • CPI/PPI
  • Factory Orders
  • NFIB Small Biz Optimism
  • Consumer Sentiment
  • Jobless Claims

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