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Weekly Update

Market Summary

U.S. equities finished a choppy week of trading last week on a positive note on Friday, bolstered by continued progress in the U.S.-China trade dispute and better than expected U.S. economic growth. Conversely, poor Chinese economic data and the breakdown in U.S.-North Korea denuclearization negotiations weighed on investor sentiment. For the week, the S&P 500 rose 0.4% and the NASDAQ gained 0.9%, while the Dow fell back 0.1% to end a nine-week streak of consecutive gains. Meanwhile, bond yields rose with the U.S. 10-year Treasury yield increasing 0.12% over the final three days of the week to close at 2.75% as investors shifted out of government bonds into riskier assets like equities.

The first preliminary reading of the U.S. 2018 fourth quarter GDP growth provided some relief to investors as it came in at 2.6% over the prior year, beating expectations for just 2.2% following some negative retail sales reports for December. The upside surprise was driven by better than expected personal consumption and business investment growth. However, there was notable weakness in interest-rate sensitive sectors such as housing.

Investor sentiment got a further boost Thursday as White House economic adviser Larry Kudlow called progress in the trade negotiations between the United States and China “fantastic” and said the countries were “heading toward a remarkable, historic deal.”  Additionally, Treasury Secretary Mnuchin told reporters that the U.S. and China are drafting a final trade agreement and are considering a Trump-Xi summit as soon as mid-March.

An end to the trade conflict would likely ease pressure on global economic growth. Several recent manufacturing surveys have highlighted how much manufacturers are suffering worldwide, particularly those exposed to China’s slowdown, as the nation’s manufacturing activity hit its lowest level in three years last week. Although a completed trade deal could benefit global investor sentiment, it is unclear how much of the upside from a trade deal is already baked into global equity prices, which have bounced back strongly so far in 2019, partially on the prospects for a trade resolution.

Economic Highlights:

Inflation: Personal Consumption Expenditures (PCE), the Federal Reserve’s preferred inflation gauge, rose 1.75% year-over-year in December, below the target of 2.0%. Modest inflation lends support to the Federal Reserve’s pledge to be patient on hiking U.S. interest rates.

Manufacturing: The U.S. ISM manufacturing activity index sank to 54.2 in February, the lowest level since November 2016, and it was below consensus expectations of a 55.8 reading.

US Economy – The Week Ahead

Tuesday 3/5/2019

  • ISM Non-Manufacturing PMI – Consensus Estimate: 57.3 (1.1% MoM), Prior Month: 56.7 (-2.2% MoM)

Wednesday 3/6/2019

  • Trade Balance – Consensus Estimate: -$57.0B, Prior Month: -$49.3B
  • ADP Employment Survey – Consensus Estimate: 185,000, Prior Month 213,000

Thursday 3/7/2019

  • Initial Jobless Claims – Consensus Estimate: 225,000 (0.0% WoW), Prior Week: 225,000 (3.7% WoW)
  • Consumer Credit Outstanding – Consensus Estimate: $17.3B (4.2% MoM), Prior Month: $16.6B (-25.9% MoM)

Friday 3/8/2019

  • Hourly Earnings Growth Year-over-Year – Consensus Estimate: 3.3%, Prior Month: 3.2%
  • U.S. Unemployment Rate – Consensus Estimate: 3.9%, Prior Month: 4.0%
  • Nonfarm Payrolls Added – Consensus Estimate: 180,000, Prior Month: 304,000
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