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Weekly Update

Market Summary

The U.S.-China trade war remained front of mind for market participants this past week as another round of escalation stoked a sell-off in global equity markets on Friday. The sell-off wiped out the week’s earlier gains driven by positive corporate earnings reports from major U.S. retailers highlighting a healthy consumer demand backdrop. For the week, the S&P 500 was down -1.4% for its fourth straight week of losses and is now off -4.5% in the month of August, while the Dow ended -1.0% lower and the Nasdaq Composite lost -1.8%.

The most recent round of back-and-forth trade escalations on Friday included an announcement from China that they are imposing additional tariffs on $75 billion of U.S. goods starting September 1st and subsequent threats from President Trump, who ordered U.S. companies to explore relocating their operations out of China. After the close of the markets on Friday, President Trump retaliated further by raising the existing tariffs on $250 billion in Chinese goods from 25% to 30% as of October 1st.

The trade war developments overshadowed what was a highly anticipated speech from Fed Chair Powell at the Jackson Hole Economic Symposium. During the speech, Powell assured investors that the central bank will "act as appropriate" to extend the current economic expansion and hinted to further reduction of the federal funds rate near term, although he provided no indication of magnitude. Such monetary policy easing would be supported by further evidence of a global slowdown, aggravated by the trade war and other geopolitical events like Brexit and the Hong Kong protests, which has weakened U.S. manufacturing and business investment. However, Powell cautioned that monetary policy is not well suited to counter business and investor anxieties stemming from a heightening trade war.

In the week ahead, investors will continue to monitor trade war developments to see if the U.S. and China will come back to the negotiating table. Additionally, there will be a second preliminary look at U.S. GDP growth in the second quarter and an updated reading on Personal Consumption Expenditures (PCE) growth, which is the Fed’s preferred inflation gauge.

Economic Highlights

Manufacturing: The preliminary reading of the Markit manufacturing PMI for the U.S. in August showed the sector falling into contraction territory for the first time in ten years at 49.9 (a reading below 50 indicates contraction). The reading fell below the consensus forecast of 50.5 and drove further flattening in the Treasury yield curve.

Gold: Gold prices ticked up 0.9% last week on rising demand as some investors view precious metals as a safe haven asset in times of market volatility.

US Economy – The Week Ahead

Tuesday, 8/27/2019

  • S&P/Case-Shiller Home Price Index Year-over-Year Growth – Prior Month: 2.4%

Wednesday, 8/28/2019

  • No Data

Thursday, 8/29/2019

  • Initial Jobless Claims – Consensus Estimate: 213,000 (1.9% WoW), Prior Week: 209,000 (-5.4% WoW)
  • U.S. Second Quarter 2019 GDP Growth Year-over-Year (Second Preliminary) – Consensus Estimate: 2.3% (2.1% QoQ), Prior Quarter: 2.7% (3.1% QoQ)
  • Wholesale Inventories Month-over-Month Growth (Preliminary) – Consensus Estimate: 0.2%, Prior Month: 0.0%

Friday, 8/30/2019

  • Personal Consumption Expenditures (PCE) Index Year-over-Year Growth – Consensus Estimate: 1.5%, Prior Month: 1.4%

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