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  • August 26, 2019

Week in Review

Week Ending: Friday, August 23rd, 2019

Recap & Commentary

Markets ended lower for the week following another escalation of trade tensions between the U.S. and China. Investors were also focused on the Fed, as Chair Jerome Powell spoke at the Fed’s annual meeting of global central bankers.

On Friday, China responded to President Trump’s recent threat to increase tariffs on $300B of Chinese goods by announcing that it will increase tariffs on $75B of U.S. goods by 5-10% starting Oct. 1. In addition, China announced that it will implement tariffs of 25% and 5% on U.S. autos and automotive parts, respectively, beginning in December. In response, President Trump “ordered” U.S. companies to stop doing business with China. Shortly after the markets closed, President Trump announced a further increase in tariffs on Chinese goods. Coming as it did after the close of business, markets may very well be down again on Monday as they price in the further trade escalations.

Speaking at the Fed’s annual conference of global central bankers, Chair Jay Powell did his best to balance the idea that the Fed stands ready to act should economic growth soften, with the fact that there are limits to monetary policy, specifically with respect to the current trade war with China. Powell noted that, “The global growth outlook has been deteriorating since the middle of last year. Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States.” Powell went on to say that, “While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade.”

Economic Bullet Points

Leading Indicators — The Conference Board’s Leading Economic Index (LEI) rose 0.5% in July, the most in ten months, and above the consensus of 0.3%. It was led by stronger building permits and lower initial jobless claims. Notably, over half of the LEI’s components increased last month, and seven were higher than six months ago, indicating that strength among individual indicators remains broad-based. Year-on-year, however, the LEI dropped to 1.6%, its slowest pace since December 2016, and below its 2.2% per annum average.

Housing — Lower mortgage rates continue to provide the housing market a modest lift. In July, existing home sales rose 2.5% to 5.4 million units, as price appreciation continued to moderate. New home sales, on the other hand, dipped -12.8% but fell from the strongest pace of the cycle in June. Also, prior month new home sales were revised substantially higher to 728K units, the strongest since 2007, which softened the overall impact of July’s month-on-month decline.

Jobless Claims — Initial claims for unemployment insurance fell -12K last week to 209K, below the consensus of 217K. They continue to hover near their lowest level since 1969, indicating tight labor market conditions. Low claims remain a positive tailwind for personal income and consumer spending.

Of Note

Concerns about Brexit intensified after new PM Boris Johnson’s request to the EU to renegotiate the current Brexit deal was denied. Additionally, an internal U.K. government study warned that the country could face food, fuel, and medicine shortages should a no-deal Brexit occur.

Market Indices Week of 8/23

S&P 500-1.6%
Small Caps-2.3%
Intl. Developed1.0%
Intl. Emerging0.6%
Commodities-0.9%
U.S. Bond Market-0.3%
10-Year Treas. Yield1.52%
US Dollar-0.5%
WTI Oil ($/bl)$54
Gold ($/oz)$1,497

The Week Ahead

  • GDP
  • Durable Good Orders
  • Intl. Trade in Goods
  • Cash-Shiller HPI
  • Personal Income & Outlays
  • Consumer Confidence
  • Jobless Claims

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