The Market Today

Trade War Remains Focus as U.S. Data Disappoints

by Craig Dismuke, Dudley Carter


Chicago Fed Index Weakest in Three Years: The Chicago Fed National Activity index fell from +0.05 to -0.45, much weaker than expected (see Chart of the Day).  The CFNAI is an aggregation of 85 different economic indicators including reports on 1) production and income, 2) the labor market, 3) personal consumption, 4) housing, and 5) sales and inventories.  For context, when the CFNAI’s three-month average is above +0.70 following an expansion (or a one-month reading above 1.00), a period of more rapid inflation is expected to occur.  The 3-month average for the CFNAI is now down to -0.32, the weakest level in three years. 

Fedspeak: Philadelphia’s Harker (non-voting, moderate), Vice Chair Clarida (voting, moderate), New York’s Williams (voting, moderate), and Fed Chair Powell (voting, moderate) are all scheduled to speak today.  Given the moderate position of each official, their comments could be noteworthy.  However, recent Fedspeak has been fairly unified around the idea of an indefinite pause as they wait for evidence that the economy remains on solid footing. 


Overnight – Trade Tensions Continue to Take a Toll on Global Markets: Global equities have limped into to Monday’s trading session following trade tensions flaring up unexpectedly over the prior two weeks. Asian markets trade mixed with Chinese stocks pulling back again after sinking 2.5% Friday on news the U.S. had added one of its biggest tech companies to an Entity List, making it more difficult for Huawei to transact business with U.S. companies. The action was taken after President Trump signed an executive order to protect the U.S. technology supply chain, citing national security risks. Over the weekend, Google said it was suspending certain services to Huawei-made phones in response to the White House’s actions. There were also indications that several global chipmakers had ceased hardware shipments to the Chinese tech giant. Europe’s Stoxx 600 lost 1.2% in value midway through Monday’s session, its tech sector dropping more than 2.3% on the back of a nearly 5% decline by its semiconductor sub-sector. U.S. futures fell in lockstep with the European indices and the Nasdaq lagged with a 1.2% loss, more than doubling the declines for the Dow and S&P 500. Global sovereign yields were more steady, inching up from Friday’s levels but pulled off their overnight highs the pressure on equities. Largely ignored by the markets, Japan’s economy grew unexpectedly in the first quarter thanks to shrinking imports and surging inventories offsetting weak domestic demand. The 2.1% annualized growth rate contrasted sharply to the -0.2% expected. Around 7 a.m. CT, the Treasury curve was little changed.


ICYMI – May 17, 2019 Weekly Market Recap: U.S. stocks and Treasury yields declined for a second week in a row as heightened trade risk continued to weigh on investor sentiment. China retaliated to the U.S. increasing tariffs two weeks ago by raising the rate it charges on roughly $60B of U.S. imports. The U.S. followed with a proposal for new tariffs of up to 25% on $300B of Chinese goods, essentially targeting the remaining balance of goods purchased from China. In addition, the U.S. took actions on Wednesday against companies posing a national security risk to the U.S. tech supply chain, specifically singling out Chinese tech giant Huawei. While trans-pacific tensions ended the week louder, the outlook elsewhere improved. The U.S. delayed a decision on auto tariffs  and reached a deal Friday to remove steel and aluminum tariffs on Canada and Mexico. On the economic front, retail sales and manufacturing output were weaker than expected in April while forward looking sentiment indicators improved. The better-than-expected readings on consumer and business confidence, however, were mostly gathered prior to the recent re-escalation of trade tensions. The housing data stood out as the most consistently stable silver lining of lower rates. Click here to view the full recap.

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