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Weekly Update

Market Summary

Global equity markets posted their largest weekly losses since the first quarter of the year this past week. For the week, the Dow was down -4.2%, the S&P dropped -4.1% and the Nasdaq fell -3.7%, and international markets mirrored this decline with a -4.0% loss for the MSCI World index (excluding the U.S.). Much of the movement in U.S. bonds and equities has been attributed to the markets repricing an unexpected jump in long-term interest rates and reinforcement of the Fed’s dedication to its gradual rate hike plan. However, a host of other factors have been asserted as well including concerns of peaking corporate profit growth, a U.S. stock buyback blackout period leading into quarterly earnings announcements, the strengthening U.S. dollar and spillover from international economic weakness, and exiting of crowded positions in high-flying growth stocks. It was likely a confluence of these factors that weighed on markets last week.

Stocks were able to rally slightly on Friday as some positive tailwinds came back into play including lower than anticipated inflation readings and strong earnings reports from major banks, although lending growth appears to be slowing slightly. Resumption of corporate buybacks may also provide a lift to equity markets, but corporate earnings results and forward looking guidance will be heavily scrutinized in the coming weeks.

Trade tensions with China remain elevated, as Bloomberg noted that President Trump reiterated his intention to impose another round of tariffs on China in an interview with CBS’s “60 Minutes”. Trump also asserted that China’s meddling in US politics is a “bigger problem” than Russian involvement in the 2016 election. Although China’s ability to retaliate in-kind with tariffs on U.S. goods is limited, they still maintain several other options to countering U.S. trade pressure, such as the reduction of their bank required reserve ratio to enhance liquidity or the devaluation of their currency.

The U.S. is also grappling with the fallout left in the wake of another natural disaster after Hurricane Michael, a category 4 storm, made landfall in the Florida Panhandle last Wednesday. The storm tragically claimed at least 15 lives and is expected to have an even greater economic impact than last month’s Hurricane Florence.

Economic Highlights: 

Inflation: The consumer-price index rose 0.1% month-over-month in September, slightly below economists’ 0.2% expectation, which brought the year-over-year growth to just 2.3%, the lowest since February. The recent deceleration of inflation growth runs in the face of the Federal Reserve’s rising expectations, a key component of their impetus to raise rates along with the dropping unemployment rate below what they view as sustainable levels.

Consumer Sentiment: The preliminary reading of the University of Michigan Consumer Sentiment survey fell unexpectedly to 99 in October, below the prior month reading of 100.1 and consensus expectations of 100.4. Economic expectations weakened, according to the report, but remain at historically high levels nonetheless.

US Economy – The Week Ahead

Tuesday 10/16/2018

  • Industrial Production (Month-over-Month) – Consensus Estimate: 0.20%, Prior Month: 0.41%
  • Job Openings & Labor Turnover Survey – Consensus Estimate: 6,900K (-0.5% MoM), Prior Month: 6,939K (4.2% MoM)

Wednesday 10/17/2018

  • Housing Starts – Consensus Estimate: 1,210K (-5.2% MoM), Prior Month: 1,282K (9.2% MoM)
  • Building Permits – Consensus Estimate: 1,280K (2.5% MoM), Prior Month: 1,249K (-4.1% MoM)
  • Federal Open Market Committee (FOMC) September Meeting Minutes released

Thursday 10/18/2018

  • Initial Jobless Claims – Consensus Estimate: 214,000 (0.0% WoW), Prior Week: 214,000 (3.3% WoW)
  • Leading Economic Indicator Index (Month-over-Month) – Consensus Estimate: +0.5%, Prior Month: +0.4%

Friday 10/19/2018

  • Existing Home Sales – Consensus Estimate: 5,295K (-0.8% MoM), Prior Month: 5,340K (0.0% MoM)
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