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Market Summary

U.S. equities broadly retreated for a second consecutive week due to weaker than expected economic data and another twist in U.S.-China trade relations. For the week, the Nasdaq Composite fell -2.2% driven by its higher exposure to the cyclical and trade sensitive information technology sector, while the S&P 500 and Dow lost -1.0% and -0.4%, respectively. Bond yields fell alongside equities as the 10-year U.S. Treasury yield declined to 1.68% from 1.75% in the week prior.

Much of the week’s slide in stock prices came on Friday following reports that the Trump Administration was considering ways to limit U.S. investment flows to China, including potentially delisting Chinese companies from U.S. stock exchanges. Such an action would mark a major escalation in the trade dispute. However, over the weekend administration officials refuted the possibility of delisting Chinese stocks at this time, which eased investor nerves somewhat heading into this week.

Meanwhile disappointing data on slowing U.S. consumer spending further complicated the market outlook, as personal consumption expenditures grew just 0.1% month-over-month in August, down sharply from July’s 0.5% growth rate and consumer sentiment data also slipped. The domestic consumer has been a significant source of support for U.S. economic growth amid slowing international demand and geopolitical tensions, so any changes will be monitored closely.

In the week ahead, market participants will keep an eye on another trade front as the World Trade Organization is set to announce a ruling on a U.S. request to impose tariffs on billions of dollars of European goods in response to a long-outstanding dispute on aircraft subsidies. Such an action would likely result in eventual retaliation from the European Union who also has filed a claim with the WTO to implement tariffs against the U.S. as a result of unfair aircraft subsidies.

Economic Highlights

  • Repo Market: The liquidity shortage in the repurchase (or “repo”) market, a crucial network used by financial institutions to fund themselves on a short-term basis, is continuing to force Federal Reserve intervention as the central bank has infused billions of dollars into the market on a daily basis. The Federal Reserve is currently considering several longer-term structural solutions to resolve the issues creating the worrisome lack of liquidity.
  • Inflation: The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose 1.4% year-over-year, notably undershooting the Fed’s 2.0% inflation target.

US Economy – The Week Ahead

Tuesday, 10/1/2019

  • ISM Manufacturing PMI – Consensus Estimate: 50.5 (2.8% MoM), Prior Month: 49.1 (-4.1% MoM)

Wednesday, 10/2/2019

  • ADP Employment Survey – Consensus Estimate: 142,500, Prior Month 195,000

Thursday, 10/3/2019

  • Initial Jobless Claims – Consensus Estimate: 215,000 (0.9% WoW), Prior Week: 213,000 (1.4% WoW)
  • ISM Non-Manufacturing PMI – Consensus Estimate: 55.2 (-2.1% MoM), Prior Month: 56.4 (5.0% MoM)

Friday, 10/4/2019

  • Hourly Earnings Growth Year-over-Year – Consensus Estimate: 3.2%, Prior Month: 3.2%

  • U.S. Unemployment Rate – Consensus Estimate: 3.7%, Prior Month: 3.7%

  • Nonfarm Payrolls Added – Consensus Estimate: 140,000, Prior Month: 130,000

  • Trade Balance – Consensus Estimate: -$54.5B, Prior Month: -$54.0B

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