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MCF Weekly Capital Market Review - January 14th, 2020

Trump announced that he will be signing the Phase One deal with China on January 15.[1] China state-sponsored media has reaffirmed that Phase One is in the final stage of the timeline but cautioned the delicacy of the situation.[2] Negotiations quickly deteriorated last May, with both sides claiming backtracking and undermining by the other. Events then transpired to an all-out trade war. We know anything can happen this week. Even with the signed Phase One deal, roughly half ($250 billion) of Chinese goods will still have a 25% tariff rate while another $120 billion will have a 7.5% tariff rate.[3]

Tensions in the Middle East flared again as demonstrators, believed to be supported by Iran, attacked the US embassy in Iraq.[4] US forces retaliated with an air strike, killing Iranian general Soleimani and other Iran-backed militia members. Soleimani was labeled a terrorist by the Pentagon prior to the strike. Iranian President Rouhani called the strike a “gruesome crime,” vowing revenge.[5] Iran responded last week by launching missiles at US military bases in Iraq,[6] although there was minimal reported damage and no reported casualties or deaths. Iran also “unintentionally” shot down a Ukrainian commercial plane, killing all 176 on board and sparking Iranian protests against the regime.[7]

Trump’s address in response to the missile attacks was of diplomatic de-escalation, calling for increased sanctions, NATO intervention, and coordinated action by major players such as Europe, Russia, and China to check Iranian aggression.[8] The beginning of the year has been a roller coaster for oil, climbing to $63.27/barrel on US-Iranian war fears, only to drop precipitously to $59.61 Thursday following Trump’s announcement.[9] The concern for market participants and consumers was Middle East unrest leading to another energy crisis, but that appears unlikely at this point. 

ISM non-manufacturing index hit high-end consensus estimates. ADP employment numbers bounced back in December with prior month numbers also revised sharply upward. 145,000 jobs were added in December, within the consensus estimate. The unemployment rate held steady at 3.5%.[10] Equities have been mixed so far this year with emerging markets leading the way after a lackluster 2019.

This week will feature releases on CPI, PPI, retail sales, housing starts, and consumer sentiment.


[10] https://us.econoday.com/byweek.asp?cust=us


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S&P Composite 1500® Index combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the US market capitalization. It is designed for investors seeking to replicate the performance of the US equity market or benchmark against a representative universe of tradable stocks. Investors cannot invest in an index.

MSCI ACWI ex USA Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging Markets (EM) countries. With 1,859 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. Investors cannot invest in an index.

Bloomberg Barclays Global Aggregate ex-USD Index is a measure of global investment grade debt from 24 local currency markets. This multi- currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Investors cannot invest in an index.

Bloomberg Barclays High Yield Corporate Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. Investors cannot invest in an index.

Bloomberg Commodity Indices are a family of financial benchmarks designed to provide liquid and diversified exposure to physical commodities via futures contracts. The Bloomberg Commodity Index (BCOM) is a highly liquid and diversified benchmark for commodity investments.

Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed- rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass- through), ABS and CMBS (agency and non-agency). Provided the necessary inclusion rules are met, US Aggregate eligible securities also contribute to the multi-currency Global Aggregate Index and the US universal Index, which includes high yield and emerging markets debt. The US Aggregate Index was created in 1986 with history backfilled to January 1, 1976. Investors cannot invest in an index.

Bloomberg Barclays 1-10 Year US Government Inflation-Linked Bond Index tracks the 1-10-year inflation protected sector of the United States Treasury market. Investors cannot invest in an index.

Bloomberg Barclays US Treasury 1-3 Year Index measures the performance of public obligations of the US Treasury with maturities of 1-3 years, including securities roll up to the US Aggregate, US Universal, and Global Aggregate Indices. Investors cannot invest in an index.

Bloomberg Barclays US Treasury Bellwethers 3 Month Index is an unmanaged index representing the on-the-run (most recently auctioned) US Treasury bill with 3 months’ maturity. Investors cannot invest in an index.