US broad market indices again set all time highs last week after a lackluster week prior. New home sales for Q3 beat expectations, confirming a pickup in housing. Consumer confidence fell for the 4th consecutive month, however confidence levels remain high. The final Q3 GDP held at 2.1%, above the original 1.9% estimate. Powell’s speech last week reiterated the Fed’s outlook of moderate growth. He highlighted the importance of hitting the 2% inflation target and sustaining the economic expansion to help low- and middle-income households often left behind. Real wages slumped until 2014 but have since continued to increase with the current economic expansion.
Trump’s next trade targets are Brazil and Argentina due to currency devaluation, proposing tariffs on steel and aluminum imports to the US. Foreign currency devaluation reduces exports to those countries. Against the US Dollar, the Brazilian Real devalued ~8.7% and Argentine Peso devalued ~37% for the past year. Brazil is the 9th-largest destination of US exports year-to-date at $31.6 billion (or a miniscule 2.6% of total exports). Argentina is even lower with $19 billion total for the year 2018. Trump has framed these devaluations as hurting US farmers and the tariffs are mostly a veiled move to fire up part of his base for 2020. The direct economic impact is likely negligible.
The elephant in the room on trade is the ongoing trade dispute with China. Despite positive reassurances by both sides, any sort of deal is appearing more likely to fall through. In the US, Congress passed a bill supporting Hong Kong protests, imposing possible sanctions for any human rights violations and the upholding of democratic principals in Hong Kong. China, through state-sponsored media, says the US must “roll back all tariffs if it is going to show sincerity” and that tariffs have to be cut first before any trade deal is reached. As always, the public is unaware of the true status of negotiations and unable to discern between official policy and political posturing.
This week will feature releases on PMI and ISM manufacturing indices, construction spending, ADP employment, and consumer sentiment.
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