Week in Review
Week Ending: Friday, September 13, 2019
Recap & Commentary
Markets drifted higher over the course of the week, supported by improved sentiment surrounding U.S./China trade tensions. Consumer data that was largely inline to slightly better-than-expected also helped.
Improving investor sentiment led to a selloff in bonds and a corresponding increase in rates. The 10-year Treasury yield ended the week at 1.90%, up from its three-year low of 1.43% earlier in the month. That had the effect of reversing the recent inversion between the 2-Year and 10-Year yields. At Friday’s close, the spread between the two yields had recovered to 0.09%, the highest level in a month.
Over the course of the week, both the U.S. and China announced delays of certain tariffs. The conciliatory gestures, which were welcomed by markets, came ahead of face-to-face talks scheduled for October. As a reminder of the potential impact the current trade war poses to the global economy, the IMF released a revised forecast saying that current and proposed tariffs between the U.S. and China could reduce global GDP growth in 2020 by -0.8%.
Faced with falling inflation, and slowing economic growth, the European Central Bank (ECB) lowered its key deposit rate further into negative territory and announced a new round of quantitative easing in which the central bank will purchase €20B of bonds/month, beginning in November. Outgoing ECB President Mario Draghi said the bank will continue the purchases for “as long as necessary.”
Economic Bullet Points
Inflation — Headline CPI ticked up an expected 0.1% in August, while core CPI (ex. food and energy) rose a higher-than-expected 0.3%. Y/Y, CPI has held steady at 1.7%, but core CPI spiked to 2.4%, the fastest pace since September 2008. Despite the increase in core prices, the report does not change the outlook for Fed policy. The market still expects a 25-50 bps rate cut this month. The PPI report (business inflation) was mixed in August, but overall, prices were stable.
Retail Sales increased by 0.4% in August, double the consensus. So far in Q3, sales are up an average 0.6% per month, which is better than the 0.4% average gain in Q2. Also, Control Group Sales, a more stable measure that serves as a proxy for consumer spending in the GDP report, increased 0.3% in August.
Consumer Credit came in sharply above expectations in July, up $23.3 billion. Revolving credit (credit cards), rose $10.0 billion after falling $0.2 billion last month, while non-revolving credit (student and auto loans) rose $13.3 billion versus June's $14.7 billion. Positive sentiment continues to support spending.
Jobless Claims for unemployment insurance dropped 15,000 last week, the most in four months, to 204,000, well below the consensus of 219,000. The reading was likely distorted by the Labor Day holiday. Still, the four-week average of claims fell 4,250 to 212,500, hovering near its lowest level since 1969.
The U.S. budget deficit topped $1 trillion in the first 11 months of the fiscal year, the first time it has exceeded that amount since 2012. Through August, the deficit increased by $169B or 19% vs. a year ago.
|U.S. Bond Market||-1.1%|
|10-Year Treas. Yield||1.90%|
|WTI Oil ($/bl)||$55|
The Week Ahead
- Leading Indicators
- Housing Data
- Industrial Production
- Jobless Claims