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  • August 19, 2019

Week in Review

Week Ending: Friday, August 16, 2019

Recap & Commentary

Global equity markets ended lower, following a turbulent week in which the S&P 500 recorded daily moves in excess of +/- 1% in four out of five trading sessions. Trade, and by extension, concerns about slowing global growth, were the primary culprits, along with an inversion in the U.S. Treasury yield curve.

Economic data out of Germany revealed that the EU’s dominant economy- and world’s fourth largest- fell -0.1% in the second quarter weighed down by trade tensions, slowing global growth, and Brexit uncertainties. Economic data out of China was equally disappointing, with industrial production falling to a 17-year low, while retail sales were significantly weaker than expected. Those data points were enough to offset the temporary boost markets received on Tuesday after President Trump indicated that he would delay ~60% of his recently announced tariffs on an additional $300B of Chinese goods until mid-December.

In response to the new round of weak data, investors further crowded into U.S. Treasury bonds, which resulted in an inversion of the yield curve, wherein the yield on the 10-Year Treasury fell below that of the 2-Year Treasury, for the first time since 2007. Often considered a harbinger of recession, the brief inversion- it lasted less than a day- further inflamed current recessionary fears.

As various central banks have moved to cut rates in response to slowing growth, by some measures the total value of global bonds with a negative yield now stands at ~$16T.

Economic Bullet Points

Inflation—The headline Consumer Price Index (CPI) reading for July matched consensus after rising 0.3%, due primarily to a 1.3% m/m rebound in energy prices. Core CPI, which excludes volatile food and energy prices, also rose 0.3%, however, the reading was slightly higher-than-expected. June saw a similar gain, so together, the June and July core inflation increases have resulted in the biggest back-to-back gain since April 2006. Y/Y, headline CPI picked up 1.8%, while core CPI was up 2.2%, both accelerating from the previous month. In sum, there were a number of signs that tariff increases are beginning to drive goods prices higher.

Retail Sales surpassed expectations, rising 0.7% in July. Gains were broad-based with ten of the thirteen categories seeing an increase in sales over the month. But, despite a delay in tariffs, spending could slow in future reports.

Industrial Production slowed 0.2% in July although the prior month’s reading got a 0.2% upward revision. Overall, manufacturing and mining industry data remains in a trend decline thus far in 2019.

Housing Starts fell 4% in July to a 1.2 million-unit pace. While starts have fallen three straight months, most of the drop has been in multifamily units.

Small Business Sentiment, according to NFIB Small Business Optimism data, rose in July, indicating that owners are navigating trade uncertainty well.

Of Note

With the 30-Year Treasury yield falling to a record low of just under 2% this week, the U.S. government is once again exploring the idea of issuing 50-year or 100-year bonds. Previous discussions in 2017 fizzled after it was determined there would be insufficient demand for the bonds.

Market Indices Week Ending 8/16

S&P 500-1.0%
Small Caps-1.3%
Intl. Developed-1.6%
Intl. Emerging-1.8%
Commodities-0.8%
U.S. Bond Market1.0%
10-Year Treas. Yield1.55%
US Dollar0.7%
WTI Oil ($/bl)$55
Gold ($/oz)$1,520

The Week Ahead

  • Leading Indicators
  • Existing Home Sales
  • New Home Sales
  • Jobless Claims

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