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Weekly Update

Market Summary

U.S. equities ended another volatile week in negative territory as weak economic data out of Germany and China and a subsequent inversion in the U.S. Treasury yield curve between the two- and ten-year yields ramped up investor fears of a global economic downturn and drove investors out of risky assets toward U.S. Treasury bonds and other safe haven assets. However, the week ended on a bit more positive note following solid consumer prints and reports of stimulus plans out of Germany and China to help revive growth in their international trade driven economies. For the week, the S&P 500 lost -0.9%, while the Dow Jones and Nasdaq Composite lost -1.4% and -0.7%, respectively. Long-term bond yields plummeted with the 10-year Treasury yield falling to 1.54% from 1.74% in the week prior, although it rose back above the 2-year yield.

Despite mounting global growth concerns, the U.S. consumer got off to a strong start in the third quarter and helped equities and bond yields regain some footing Thursday as the retail sales report for July stated a 0.7% growth reading over the prior month, which was the strongest print in the last four months and came in well above expectations for 0.3% growth. The University of Michigan’s Consumer Confidence index slipped to 92.1 from 98.4, partially driven by the recent volatility and trade tensions but is still in robust territory.

The late week equity rally has carried into this week’s early trading with the help of a small reprieve in U.S.-China trade tensions. The Trump Administration has granted Chinese telecom giant, Huawei, another 90 day extension to purchase from U.S. suppliers. This follows last week’s announcement that implementation on a large portion of the latest proposed tariffs on Chinese goods will be pushed back from early September to mid-December to limit the impact on consumer spending for the holiday season.

The economic calendar in the week ahead is relatively light, except for the release of the July Federal Reserve meeting minutes on Wednesday and a speech from Fed Chairman Jerome Powell at the Jackson Hole Economic Symposium on Friday, which might give some insight into potential monetary policy decisions at the September Fed meeting. According to the CME FedWatch Tool, traders are currently pricing in a 100% probability of a rate cut at the September meeting, with the vast majority expecting the magnitude to be a 0.25% cut.

Economic Highlights

Inflation: The U.S. Consumer Price Index (CPI) came in above expectations with a 1.8% increase year-over-year (a 2.2% increase excluding food and energy prices) compared to forecasts for a 1.7% increase, which was driven by higher medical services costs and a small impact from tariffs. The higher inflation reading is one factor that may work against more aggressive interest rate cuts, which could push inflation even higher.

Production: July industrial production in the U.S. fell by -0.2% compared to an expected expansion of 0.2% with the manufacturing sector weighing down the reading with a -0.4% contraction. Europe and China also reported disappointing industrial production figures last week.

US Economy – The Week Ahead

Tuesday, 8/20/2019

  • No Data

Wednesday, 8/21/2019

  • Federal Open Market Committee (FOMC) July meeting minutes released

Thursday, 8/22/2019

  • Initial Jobless Claims – Consensus Estimate: 215,000 (-2.3% WoW), Prior Week: 220,000 (4.3% WoW)
  • Leading Economic Indicator Index (Month-over-Month) – Consensus Estimate: 0.3%, Prior Month: -0.3%

Friday, 8/23/2019

  • New Home Sales – Consensus Estimate: 640K (-0.9% MoM), Prior Month: 646K (7.0% MoM)

  • Speech from Fed Chairman Jerome Powell at Jackson Hole Economic Symposium

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