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Week in Review

Week Ending: Friday, August 10, 2018

Recap & Commentary

Market returns were generally negative, impacted in part by rising tensions between the U.S. and Turkey and further tariff announcements between the U.S. and China.

On Friday, President Trump announced that he was doubling tariffs on steel and aluminum imported from Turkey to 50% and 20%, respectively. The move followed souring relations between the two countries which reached new lows this month over the imprisonment of an American pastor.  In response, the Turkish lira fell nearly 15% against the U.S. dollar.  That, in turn, fueled concerns about the country’s fiscal health and weighed on the broader emerging markets complex.

China and U.S. trade tensions remained elevated with China confirming that it will impose 25% tariffs on an additional $16B of U.S. exports beginning August 23. The move was intended to match a prior announcement by the U.S. to increase tariffs on an additional $16B of Chinese imports set to begin the same day.

The Russian ruble fell to a two-year low after the U.S. announced new sanctions on Russia in response to a nerve-agent attack on a former Russian spy in the U.K.  The sanctions restrict exports of anything with a potential national security purpose.

Through Friday, 91% of S&P 500 companies had reported second-quarter earnings.  To date, 79% and 72% of those companies that have reported have beaten their earnings and sales estimates, respectively. According to FactSet, S&P 500 earnings growth is tracking at 24.6%, which, if achieved, would be the second highest growth rate since 3Q10.  Sales growth is currently tracking at 9.9%, which, if achieved, would mark the fastest growth since 3Q11.

Economic Bullet Points

  • Inflation—Core consumer and producer prices (ex-food, ex-energy) continued to creep up in July, up 0.2% and 0.3%, respectively, from the prior month. Year-on-year, CPI has risen by 2.4%, and PPI has increased by 2.8%. While both data points confirm that prices for both consumers and business are firming, economists expect that core inflation growth will remain modest and manageable. Also, consensus suggests that the Fed, post-this data, remains on target to raise rates twice more this year.
  • Consumer Credit balances came in significantly below consensus, up $10.2B in June, versus a $16.0B expectation, as consumers refrained from adding to, and even paid down, revolving credit balances following the sharp increase posted last month. Non-revolving credit, however, which tracks both auto financing and student loans, rose a moderate $10.4B.
  • Jobless Claims remain very low and are consistent with strong job growth and a low unemployment rate. Claims decreased by 6K to 213K, versus the 221K expectation.

Of Note

The number of publicly listed U.S. companies peaked in 1997 at ~7,600.  Today the number is ~3,600.

Market Indices Week of 8/10

S&P 500                          -0.3%

Russell 2000                   0.8%

MSCI EAFE                     -1.6%

MSCI EM                         -1.0%

Commodities               -0.8%

Barclay’s Agg.                0.4%

US Dollar Index              1.3%

10-Yr Yield                     2.87%

WTI Oil ($/bl)                   $67

Gold ($/oz)                    $1,214

The Week Ahead

  • NFIB Small Business Optimism Index
  • Retail Sales
  • Productivity and Costs
  • Industrial Production
  • Empire State Mfg Survey
  • Philly Fed Business Outlook
  • Housing Starts
  • Consumer Sentiment

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