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  • September 9, 2019

Week in Review

Week Ending: Friday, September 6, 2019

Recap & Commentary

Markets shook off weak U.S. manufacturing and employment data, to end the holiday-shortened week higher, propelled by easing trade tensions between the U.S. and China, and comments by Fed Chair Jay Powell.

On Thursday, the U.S. and China announced plans to restart face-to-face talks in October. While there is no guarantee that this round of talks will be any more successful than prior rounds, markets were heartened by the fact that the two sides are at least willing to engage. As signs of slowing in both countries increase, so to might the desire to normalize trade relations.

In a response to slowing conditions, China’s central bank cut the reserve ratio for banks by 0.5%. The move marked the seventh cut since 2018, and largest during the current easing cycle. The move will provide ~$126B to help stimulate the economy. Whether or not the increase in liquidity actually spurs economic growth remains to be seen. Much like in the U.S., trade-related uncertainty, not access to capital, currently appears to be the largest hindrance to growth.

Speaking at a conference in Switzerland, Fed Chair Jay Powell stated that the most likely outlook for both the U.S. and global economy is continued moderate growth. However, he indicated that the central bank is monitoring “significant risks” and will “act as appropriate to sustain this expansion.” Market expectations for another 0.25% rate cut at the Fed’s September meeting currently stand at 90%.

Economic Bullet Points

US Employment — Amid trade tensions and fears of recession, nonfarm payrolls increased a below consensus 130K in August and 25K of which was a product of temporary 2020 Census hiring. Hiring has certainly slowed from the start of the year, as the 12-month average change now stands at 173K, versus 235K in January. The unemployment rate, however, remained at 3.7%.

US Services data was mixed but net positive in the month of August due primarily to sustained growth in consumer demand, a factor that has become a central strength supporting the US economy.

US Manufacturing — ISM and PMI manufacturing index data softened in August. Notably, the ISM measure fell below 50 for the first time since 2016, driven by a sharp contraction in new export orders. Given the broad weakness throughout the reports, a September interest rate-cut will likely come to pass.
Factory Orders rose 1.4% in July, the most in a year, and above the consensus of 1.0%. Despite the July increase, factory orders have declined -0.9% y/y, the most since October 2016, and in-line with the broader manufacturing slowdown.

International Trade — The US trade deficit narrowed by $1.5 billion in July to -$54 billion as a gain in exports outweighed a decline in imports. The report, however, does not reflect the most recent US-China trade war escalation.

Of Note

In the U.K., new PM Boris Johnson suffered a series of setbacks. First, Parliament passed a bill preventing Johnson from moving forward with a no-deal Brexit. Then, opposition parties refused to hold snap elections until he secures a Brexit extension from the EU- something he vows not to do.

Market Indices Week of 9/6

S&P 5001.8%
Small Caps1.0%
Intl. Developed1.7%
Intl. Emerging1.9%
Commodities1.1%
U.S. Bond Market-0.3%
10-Year Treas. Yield1.55%
US Dollar-0.5%
WTI Oil ($/bl)$57
Gold ($/oz)$1,507

The Week Ahead

  • Inflation (CPI / PPI)
  • Retail Sales
  • Consumer Credit
  • NFIB Small Biz Optimism
  • Consumer Sentiment
  • Jobless Claims

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