The Market Today
New Tariffs Take Effect, Officials ‘Struggling’ to Schedule New Talks
by Craig Dismuke, Dudley Carter
ISM Manufacturing Index Kicks Off Important Week of Data: Today’s economic calendar kicks off an important batch of data leading into the Fed’s September 18 decision. The August ISM Manufacturing index, which has been an important indicator of how much the trade uncertainty has affected the manufacturing sector, is expected to inch up from 51.2 to 51.3 at 9:00 a.m. CT. The index is currently at its weakest level since 2016. Just before the report, the Markit Manufacturing Index is expected to rise from 49.9 (contractionary) to 50.0 in its final August revision.
Construction Spending Expected to Tick Higher on Lower Rates: At 9:00 a.m. CT, the July Construction Spending report is expected to show activity increase 0.3% MoM. Spending on construction has been notably weak with residential spending down 8.1% YoY and private non-residential down 0.5% YoY, despite the recent drop in financing costs. Expectations are that spending will pick back up as affordability is positively impacted by lower rates.
Final Wave of Pre-Meeting Fedspeak Begins Today: Also on the tape today are comments from Boston’s relatively hawkish, voting member Eric Rosengren. This will be followed tomorrow by a barrage of comments from other voting members. These comments will be the final informal guidance markets receive heading into the pre-meeting quiet period.
OVERNIGHT TRADING ACTIVITY
September Kicks Off With New Tariffs In Place: U.S. equity futures spent the overnight session floundering in negative territory as September’s trading kicks off with new tariffs in place between the U.S. and China. Treasury yields rose during the Asian session, but turned lower as European markets dropped at the open. The U.S. placed a 15% tariff on an additional $112B of Chinese imports starting Sunday, a move that brings a host of consumer goods into the long simmering trade war. China has responded with tariffs on a list of U.S. products, and both sides have additional actions planned for December in the case no deal is reached in the interim. The two sides are expected to meet this month to try and find common ground, but Bloomberg reported Tuesday the countries are “struggling to agree on the schedule” since the new tariffs have been put in place.
Struggling European Economy Faced With Increased Risk Of No-Deal Brexit: In addition to the trade war, European markets were met by unfriendly headlines about the possibility of a general election in the U.K. The pound weakened and gilt yields fell after U.K. PM Johnson said he would respond to parliamentary attempts to block a no-deal Brexit by calling a general election on October 14, ahead of the October 31 deadline. The ECB will meet next week and is expected to ease policy to offset drags from the U.S.-China trade war and Brexit-related uncertainty. The euro slipped to $1.09 overnight, a new low back to May 2017.
U.S. Assets Start September With Modest Risk-Off Tone: The drop in U.K. yields dragged Treasury yields lower, as investors await important U.S. data from the Institute of Supply Management (ISM). The manufacturing survey kicks off an important week for updates on the U.S. economy that will be capped by Friday’s payroll report from the BLS. At 7:42 a.m. CT, the Treasury curve was down less than 1 bp across the curve and S&P 500 futures were down 0.6%.
ICYMI – August 30, 2019 Weekly Market Recap: Click here to view the latest twists and turns in the ongoing trade war.