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Weekly Update

Market Summary

Growing fears of trade war escalation between the U.S. and China and emerging market turmoil weighed on U.S. and global equities this past week. The Dow Jones only lost about -0.14% for the week, while the S&P 500 and Nasdaq were down about -1% and -2.5%, respectively, as the latter indices were dragged down by greater exposure to the energy and information technology sectors where the fallout from recent international turmoil has been particularly acute. Defensive sectors including consumer staples and utilities outperformed and generated positive returns for the week. Meanwhile, the MSCI world equity index excluding the U.S. lost -2.4% for the week.

Hopes of an agreement between the U.S. and China have begun to fade as President Trump threatened additional tariffs on $267 billion of Chinese goods this past week, on top of the prior $200 billion already planned, which would effectively cover all goods imported from China. Last week’s trade balance report may further escalate tensions, as the United States’ trade deficit with China has reached a record $31.05 billion as of August. The bearish sentiment around trade tensions and emerging market conflicts also weighed on oil prices this past week with WTI and Brent crude oil prices falling -3.0% and -1.2%, respectively, reversing their recent rally and pressuring energy stock returns.

On a positive front, the U.S. economy continued to demonstrate its strength this past week as August hiring grew and wages notched the largest increase in nine years. Employers added 201,000 jobs and the unemployment rate remained at 3.9%, near an 18 year low. August non-farm payrolls report showed a higher than expected 0.4% rise in average hourly earnings, which pushes the year-over-year rate to 2.9%, its highest level since May 2009. Although this demonstrates economic strength, it also has stoked inflation fears among investors, as higher than expected inflation could force the Fed to be more aggressive in raising rates. Investors will be paying close attention to the inflation figures to be announced in the coming week to see if wage pressures are starting to feed into inflation.

Economic Highlights

  • Manufacturing: The Institute for Supply Management (ISM) Manufacturing Index rose to 61.3 in August from 58.1 in July, which was above consensus expectations of 57.6. The reading was supported by strong growth in new orders; however, some underlying components, including producers of steel and aluminum, saw inflationary pressures.
  • Yield Curve: U.S. Treasury yields climbed across the curve for the third week in a row as a result of the strong economic reports released in August. The spread between the 2-year and 10-year Treasury yields has widened slightly to 0.24% from a low of 0.19% the week prior, indicating rising economic growth and inflation expectations.

US Economy - The Week Ahead

Tuesday, 9/11/2018

Job Openings & Labor Turnover Survey – Consensus Estimate: 6,665K (0.0% MoM), Prior Month: 6,662K (0.4% MoM)
Wholesale Inventories Month-Over-Month Growth – Consensus Estimate: 0.65%, Prior Month: 0.1%

Wednesday, 9/12/2018

U.S. Producer Price Index (PPI) Year-Over-Year – Consensus Estimate: 3.2%, Prior Month: 3.3%

Thursday, 9/13/2018

Initial Jobless Claims – Consensus Estimate: 210,000 (3.4% WoW), Prior Week: 203,000 (-4.7% WoW)
U.S. Consumer Price Index (CPI) Year-Over-Year – Consensus Estimate: 2.9%, Prior Month: 2.8%

Friday, 9/14/2018

U.S. Import Price Index Month-over-Month Growth – Consensus Estimate: 0.00%, Prior Month: 0.00%
U.S. Export Price Index Month-over-Month Growth – Consensus Estimate: -0.50%, Prior Month: 0.00%
Industrial Production (Month-over-Month) – Consensus Estimate: 0.30%, Prior Month: 0.11%
University of Michigan Consumer Sentiment Survey (Preliminary) – Consensus Estimate: 96.5 (0.3% MoM), Prior Month: 96.2 (-1.7% MoM)

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