The Market Today
IMF Lowers Growth Forecast; Chinese Growth Weakest in 30 Years
by Craig Dismuke, Dudley Carter
Existing Home Sales: December’s Existing Home Sales report is scheduled for 9:00 a.m. CT and is expected to show a 1.5% MoM decline. Last week’s homebuilder confidence data continued to highlight a weaker outlook for the housing sector as affordability has become increasingly challenged.
Day 32 – Shutdown Continues to Weigh on Forecasts and Economic Data: The remainder of the week will bring just a handful of economic reports with the most important data, Friday’s Durable Goods Orders report and New Home Sales report, likely delayed because of the government shutdown. Economists are now grappling with quantifying the impact of the shutdown. Several noteworthy economists concluded that the shutdown could drag as much as 1.0% from GDP if it persists for the entire quarter. Additionally, with 1Q growth already expected to be weaker, such a result would push growth into the too-close-for-comfort range of contraction.
Overnight – Risk Retreats after Solid Week as Data Confirms Slower China, IMF Outlook Weakens: A risk-off tone will welcome U.S. traders back from a long weekend break and threatens to the end the S&P 500’s four-day win streak (the index is up nine days out of the last 11). The most commonly-cited catalyst for Tuesday’s concerns was the IMF’s latest downward revision to its global growth forecast. The group shaved 0.2% and 0.1% off its forecasts for 2019 (3.5%) and 2020 (3.6%), respectively, as “the risk of a sharper decline in global growth has certainly increased.” The report’s release came a day after China reported its weakest year of growth since 1990. While some of the detailed data exceeded estimates in December, the world’s second largest economy grew 6.4% in 4Q, the slowest quarter since 2009, and 6.6% in 2018, the weakest in nearly 30 years. China’s CSI 300 fell 1.3% Tuesday to lead wider losses in the region which combined to trip up trading in Europe. The Stoxx 600 was down 0.3% with more sectors than not struggling in negative territory. A closely-watched survey of growth expectations for the Eurozone was stable to start 2019 but remained near its weakest level since 2012. Brexit will remain a focus as the current March 29 exit date creeps closer, but investors received a bit of positive news overnight. Wage growth in the U.K. remained on its 3.3% YoY pace as the unemployment rate unexpectedly ticked back down to 4.0% to match its lowest level since 1975. U.S. futures were down 0.6% and the 10-year Treasury yield dropped 4.0 bps to 2.75%.
ICYMI – January 18, 2019 Weekly Market Recap: Treasury yields rose last week as investors looked through mixed U.S. economic reports and disappointing trade data from China and sent the S&P 500 up by 2.9%. Although there were meaningful developments on the Brexit saga and Fed officials continued to preach patience, the more salient drivers of the weekly market changes were activities affecting investors’ assessment of the U.S.-China trade dispute. The WSJ reported Thursday that White House officials with the President’s ear on trade were debating “ratcheting back tariffs” on China to ease the market’s nerves and help along trade negotiations. While Treasury quickly rebuffed the report, investors assumed that where there’s smoke there’s fire. Then Friday, Bloomberg said China had offered to boost U.S. imports by $1T over six years in an attempt to zero out the respective trade imbalance by 2024. The weekly gain was the S&P 500’s third in the a row, the longest run since September, and pushed the index up 6.5% for the year, its best 13-day start to a year since 1987. The 2-year yield rose 5 bps on Friday, and 7.3 bps for the week, to close at 2.62%. The 10-year yield added 3.4 bps Friday, and 8.3 bps for the week, to finish at 2.79%. Both represented the highest closes since December 26. Click here to view the full recap.