A recent dip below 50 in the US ISM Manufacturing Index has reignited recession fears. While often interpreted as a recessionary signal, we believe its signaling power is limited as 1) prints remain above 45, a level many strategists consider to be more telling, 2) historically a sub-50 reading preceded a recession less than half the time and 3) the economy is less reliant on the manufacturing sector.
US equity levels soared above 3,000 this past week as a series of US-China trade concessions boosted sentiment ahead of scheduled tariff increases in October. Both parties displayed leniency—China exempted 16 US products from import tariffs and the US delayed tariff hikes on $250 billion of goods. Trade-sensitive sectors like Tech contributed to the S&P 500's rally of 1.02% on the week. In Europe, the FTSE 100 and the Eurostoxx 600 closed 1.17% and 1.20% higher, respectively, as central bankers delivered a monetary stimulus package, though compositionally different from market expectation. Read More
Brent and WTI crude oil both ended lower at $60.22 and $54.85 per barrel (bbl), respectively. Prices fell on weaker-than-expected 2019 demand growth, bleak global economic outlook, and uncertainty surrounding OPEC’s ability to deliver deeper supply cuts in December. Read More
US Treasury yields rose as US-China trade concerns abated, offsetting drags from the ECB’s accommodative policy announcement. US 2-Year and 10-Year Treasury yields ended the week higher at 1.80% and 1.90% respectively. In Europe, policy measures drove regional government yields. German Bund yields surged mid-week to their highest level in six weeks, ending up 19 bps at -0.45% for the week. Read More
The US dollar weakened 0.08% against major currencies, and strengthened against others on news of easing political risk and monetary policy. The UK sterling hit a seven-week high against the dollar as fears of a no-deal Brexit were assuaged, ending $1.248 for the week. The euro also jumped 0.33% against the dollar and ended at $1.107, supported by higher German government yields. Read More
Euro area industrial production contracted by -0.4% MoM in July, exceeding consensus expectations for a -10 bps decline, but milder than the contraction observed in June. The softness in data was largely driven by Germany and Italy. Read More
August’s US core consumer price index (CPI) continued to firm, posting a +0.2% increase from the prior month and beating consensus expectations of +2.3% YoY. The print came in at 2.4% YoY with boosts coming from medical care and lagged effects of trade tariffs, while weakness from shelter and apparel measures offset some of these increases. Read More
The ECB’s multi-dimensional monetary stimulus package, aimed at addressing a slowing Eurozone economic growth, included: 1) a 10 bps cut to the deposit rate, which is now -0.5%, 2) reinstitution of asset purchases sized at 20 billion euros a month, and 3) improved TLTRO-III conditions to support banks. The central bank stressed limitations of rate cuts, calling instead on fiscal stimulus to support growth. Forward guidance also provided flexibility by removing the prior “mid-2020” guidance and pivoting to state-based inflation targeting, leaving quantitative easing open-ended. Read More
For style performance, Large, Mid, and Small refer to the Russell 1000, Russell Midcap, and Russell 2000 indices, respectively. Value refers to companies with lower price-to-book ratios and lower expected growth values, and Growth refers to higher price-to-book ratios and higher forecasted growth values. Government, Corporate, and High Yield refer to the US Treasury index, the US Corporate Credit index, and the US High Yield index, respectively. Short, Intermediate, and Long refer to the Short, Intermediate, and Long segments of their respective curves. Quality returns refers to the credit quality of asset classes ranging from Government, highest quality, to High Yield, lowest quality.
US Industrial Prod.
(Cons: -0.2%, Prior: -0.2%)
(Cons: 1.0%, Prior: 1.0%)
UK CPI YoY
(Cons: 1.8%, Prior: 2.1%)
US Housing Starts
(Cons: 1250K, Prior: 1191K)
Philly Fed Survey
(Cons: 11.0, Prior: 16.8)
(Cons: --, Prior: 0.6%)
Eurozone Consumer Confidence (Cons: -7.1, Prior: -7.1)
(Cons: 0.5%, Prior: 1.1%)
“Euro PMI” refers to the Markit Eurozone Composite Purchasing Managers’ Index. “Cons. Conf.” refers to US Consumer Confidence. “GE IFO Business” refers to the German Ifo Business Climate Survey. “New Home Sales” refers to US New Home Sales (MoM). “Dur. Gd. Ord.” refers to US Durable Goods Orders. “UK GDP” refers to the QoQ estimate of the United Kingdom’s Gross Domestic Product for Q3. “Euro M3” refers to the YoY change in the Eurozone’s M3 Money Stock. “US GDP” refers to the estimate of US Gross Domestic Product for Q3. “Pers. Cons.” refers to US Personal Consumption. “UMich Cons. Sent.” refers to the University of Michigan Consumer Sentiment Index. “Japan Core-Core CPI” refers to Japan’s Consumer Price Index (ex- Food, Energy YoY).
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