Market Update: Thursday, July 19, 2018


Daily Insights

  • Business confidence holding up well amid escalating trade tensions. Business confidence remains strong based on the latest survey data from the National Federation of Independent Business. The percentage of small business owners indicating it is a good time to expand dipped slightly from May to June but remains above the peaks of the past three decades. Strong data from the Institute for Supply Management tells the same story, even though all Federal Reserve (Fed) districts cited concerns about the continued tightening of the labor market, inflationary pressures, and tariffs in the Fed’s Beige Book.

  • What to watch on the trade front. President Trump’s meeting with European Commission leader Jean-Claude Juncker next week will be important because of possible auto tariffs; a concern evident in weakening German business confidence readings, a country which relies heavily on auto exports. We will also be watching for any signs of real progress on a bilateral trade agreement with Mexico; talks will resume on July 26. There is little incremental news to report on China trade talks.

  • U.S. dollar poised for a breakout? The U.S. Dollar Index (DXY) has rebounded ~8% off of its April lows and is now up ~2% year to date. Should the strength continue, currency will begin to hit earnings. Keep in mind that the dollar will positively impact year-over-year earnings growth in the second quarter-the average price of the DXY in the second quarter of 2018 was down ~6% vs. the prior-year quarter. The related currency weakness and tightening financial conditions in emerging markets (EM) remain a struggle for EM equities, which continue to lag U.S. and developed international equity benchmarks.

  • Day two of Powell’s testimony. Fed chair Jerome Powell spoke before the House Financial Services Committee (in the second day of his semi-annual testimony before Congress). Powell noted that the risks to inflation are “roughly balanced,” and added that he is “slightly more worried about lower inflation (than higher).” Powell’s latest view on inflation is an unusual take for the Fed, which has publicly erred towards warning about inflation increasing too quickly. However, his view echoes the breakeven markets, as the 1-year breakeven rate has steadily declined for four straight months.


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  • Japan: All Industry Activity Index (May)



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Index data obtained via FactSet


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