The Market Today
Trade Discussions Continue to Be Focus of the Markets
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
Construction Spending, Manufacturing, Non-Manufacturing, Trade, and August’s Labor Reports: This week’s calendar is loaded with important reports, culminating with Friday’s labor data for the month of August. Starting today, we will see data on July Construction Spending (expected to be up), the ISM’s August Manufacturing Index (expected to be fractionally weaker), and August’s auto sales data (expected to be slightly stronger than in July). Thursday will bring the August ADP Employment report, the most influential indicator leading up to Friday’s BLS labor reports, and the ISM’s Non-Manufacturing index for August. Finally, the BLS will release the official August labor data on Friday with expectations that nonfarm payrolls grew 191k, the unemployment rate fell to 3.8%, and average hourly earnings held at a 2.7% YoY growth rate. Earnings growth are likely to remain the focus on the report with a miss, in either direction, having the biggest impact on the markets.
Fedspeak and Trade Discussions: Apart from the economic data, the calendar is back-end loaded with Fedspeak including comments from new New York Bank President Williams on Thursday. Perhaps more important to the markets, trade rhetoric and formal discussions between the U.S. and Canada, the U.S. and Europe, and the U.S. and China will continue in various forms this week. Recently, these have been most influential for the markets.
Overnight – Equities Struggled Overnight as Global Trade Tensions Remain in Focus: Global investors remain jittery Tuesday as trade concerns from last week have lingered over into a holiday-shortened week in the U.S. After a mixed session in Asia, European equities have followed a relatively steep trendline downward to near their lows of the day ahead of U.S. trading. As the Stoxx Europe 600 marched to trade 0.7% lower, S&P 500 gave up early gains and moved to down 0.2%. Despite an early-week deal with Mexico last week, the U.S. and Canada failed to agree to terms on trade by the end of business last Friday. The White House informed Congress Friday of its intent to sign a new agreement before December and the negotiations with Canada are set to resume this week. Also keeping investors focused on trade, the public comment period on a proposal to tag another $200B of imports from China with a 25% tariff ends on Thursday. President Trump has said he’s comfortable moving forward with those tariffs as soon as the comment period expires. That would be the largest escalation yet of the ongoing trade spat and could add to the concerns about the slowing of the Chinese economy. On Monday, a private gauge of how its manufacturing sector is faring fell for a third month in a row to its lowest level in fourteen months. Despite the noise in equity markets, Treasury yields inched modestly higher. The 10-year yield has moved up 1.8 bps to 2.88% in front of early U.S. transactions. Also overnight, crude prices were notably firmer with U.S. WTI jumping more than 2.0% to $71.21 per barrel, its highest level since 2014. Traders said worker evacuation caused by Tropical Storm Gordon’s forecasted path across the Gulf of Mexico was a primary reason.
ICYMI – August 31, 2018 Weekly Market Recap: Yields rose last week but finished off their peaks after Monday’s U.S.-Mexico agreement on trade initially boosted confidence but failed to alleviate all of investors’ trade-related concerns. The 2-year yield rose 0.7 bps while the 10-yield gained more than 5 bps. After reaching their weekly highs on Wednesday following the updated traded agreement with the U.S. and its southern neighbor, yields trimmed those gains following the failure of Canada to quickly agree to the new terms. In addition, lingering concerns about this week’s deadline for comments on another round of tariffs on Chinese imports also weighed. The economic data was mixed. Housing continues to languish based on the July pending home sales data. Growth in the second quarter was an even stronger 4.2% thanks to larger gains in the already-strong business spending and trade categories. Personal income growth fell short of expectations for July but solid spending carried over from the second quarter. The four-week average for initial jobless claims fell to its lowest level since 1969 and continued strength in the labor market was a primary driver of the unexpected jump in consumer confidence. The Conference Board’s consumer confidence index hit a new 18-year high as readings on employment opportunities, income growth expectations, and business conditions more broadly all touched their strongest levels since the early 2000s. Click here to view the full recap.