MCF Weekly Capital Market Review - August 26th, 2019
Last week, there was very little released in terms of economic indicators. Even geo-political events, at least those with large potential for market impact, were quiet. Trump provided a vague “Doing great with China” update on Wednesday. Then came Friday with China announcing retaliatory tariffs on $75 billion of US goods in two rounds on September 1 and December 15, matching the implementation of the latest US combined rounds of $300 billion in tariffs on Chinese goods. China’s tariff announcement was balanced (as was Trump’s) with some optimism, insisting that it was “forced to take countermeasures” but hopes to “resolve differences” to end trade frictions. According to the White House, points of contention include cyber intrusion, forced technology transfers, intellectual property theft, and currency manipulation.
The announcement appeared to be unexpected by the administration with Trump’s frustration clearly displayed on social media that morning. In a barrage of posts, Trump decried the “trillions” lost from intellectual property theft by China, called Xi (and Powell) an enemy, and ordered US companies to “immediately start looking for an alternative to China.”1 Equity markets and Treasury yields fell in response to this re-escalation. Another round of US tariffs on China is scheduled to go into effect on September 1.
Friday also included Fed Chair Powell’s anticlimactic speech at Jackson Hole. Market participants received little insight, hearing the repetition that the Fed will “act as appropriate to sustain the expansion” along with concerns of slowing global growth and effects of trade policy uncertainty. One positive was the affirmation that the US economy is close to the Fed’s goals of price stability and full employment. The next Fed decision on rates is September 18 and Powell’s comments did little to alter market expectations of another 25 basis point rate cut.
The G7 summit in France ended over the weekend. Highlights focused on foreign policy tensions and potential new trade deals, national security concerns, environmental protection progress (including French protestors demanding Macron do more), and a surprise visit by the Iranian Foreign Minister. On Sunday, $20 million was pledged to Amazon countries to combat forest fires and develop a long-term plan to protect the rainforest. The summit showcased tense relationships amongst global leaders, but also provided plenty of small victories that should provide forward momentum for global economic progress.
Economic indicators to be released this week include durable goods, consumer confidence and sentiment, GDP, and personal income and outlays.
IMPORTANT DISCLOSURE INFORMATION
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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.
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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.
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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.
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