The Market Today
U.S. China Trade Talk Remains Focus
by Craig Dismuke, Dudley Carter
Consumer Credit and Fedspeak: July’s Consumer Credit report is expected to show a $14.4 billion increase in credit. Credit growth peaked back in 2015 with its rate of growth slowing in both revolving and non-revolving. However, overall credit outstanding continues to set new record-highs, albeit contained as a percentage of GDP/disposable income/etc. Also on the calendar today, Atlanta Fed Bank President Bostic (2018 voter) is scheduled to speak on the economic outlook. There is a small deluge of Fedspeak this week in the build-up to the September 26 FOMC meeting. Markets are likely to be focused on trade rhetoric between Washington and China.
Overnight – Stocks Set for Recovery Monday, Treasury Yields Hold Last Friday’s Finish Higher: After a sluggish start to Monday’s global session, U.S. equity futures have strengthened alongside the major exchanges in Europe. Ahead of this week’s busy U.S. economic calendar that is likely also to be impacted by headlines on trade developments, Nasdaq futures were leading Monday’s futures’ jump with a 0.6% gain. Contracts for the S&P 500 were 0.4% higher while the Dow lagged at 0.3%. The Stoxx Europe 600 was 0.6% higher and trading at its highest mark of Monday’s session with the biggest national gains seen in the peripheral countries. Italy’s FTSE MIB had rallied more than 2.2% after the country’s finance minister said cutting the national debt load will be a key in turning the country’s economy and adding Italy will respect EU budget rules. He also said there are plans to halve the growth gap between Italy and the EU but not at the expense of the deficit. Before European trading, shares in China led another day of weakness in Asia with the CSI 300 falling to within one point of its near-two-year low from last month. Trade tensions between China and the U.S. tightened again last week after President Trump said tariffs on $200B of Chinese imports “will take place very soon depending on what happens,” and could be followed by action against another $267B of goods. Despite equity futures snapping back, Treasury yields had done little following Friday’s big increase (more below). The entire curve was essentially flat.
ICYMI – September 7, 2018 Weekly Market Recap: Treasury yields were higher after the first three trading days following the Labor Day holiday break but the biggest action occurred on Friday following the release of August’s nonfarm payroll report. Before the payroll data was released, the ISM’s latest survey result showed an unexpected uptick in the manufacturing PMI to its highest level in over 18 years and a bigger-than-expected gain in services sector activity. Both reports were led higher by gains in new orders and production activity but saw all of the major underlying indexes improve. The trade deficit widened as exports fell $2.1B while imports rose $2.2B and the bilateral deficits with China and the EU reached record highs. Several Fedspeakers highlighted the strength of the U.S. economy in public remarks but offered different takes on how the Fed should respond; Bullard wants to follow market signals more than the economic models, Evans believes policy may need to become restrictive next year, and Williams doesn’t find a Fed-induced curve inversion worrisome on its own. But despite the different recommendations, a hike at the September meeting became a near certainty after payroll growth remained strong and earnings growth showed some unexpected momentum. Year-to-date payroll growth has averaged 207k once a better-than-expected 201k August figure but a big -50k prior revision are added in. The unemployment rate ticked lower to 3.853% (still rounded to 3.9%) but a pop in earnings growth to a cycle high 2.92% YoY sent Treasury yields up more than 6 bps. Markets have been waiting for the tight labor market to finally create the long-anticipated upward pressure on wages. Click here to view the full recap.