Weekly Update 8/3/2018 – U.S. Outperforms in Busy Week

US: S&P 500 Index +0.8%, Dow +0.1%%, Nasdaq +1.00%
Europe: STOXX Europe 600 -0.7%, German DAX -1.9%, France CAC 40 -0.59%, U.K. FTSE 100 -1.6%
Asia: Japan Nikkei -0.8%, China Shanghai Composite -4.6%, Korea KOSPI  -0.32%
Rates/Commodities: 10-Year Treasury yield -1 basis points to 2.95%, WTI crude oil -0.2%, COMEX gold -0.1%

It was a busy week for investors on multiple fronts with several major central banks holding monetary policy meetings, earnings reports from 140 S&P 500 companies, and new developments in the U.S.—China trade skirmish. Add to all that a swath of top-tier economic data releases, including underwhelming global manufacturing and monthly nonfarm payrolls reports, and it’s no wonder major indexes gyrated between gains and losses throughout the week.

On the domestic front, a mixed bag of economic data that included weaker-than-expected auto sales and nonfarm payroll figures, in-line readings on inflation and personal income, and better-than-expected pending home sales, helped spur choppiness in stocks’ day-to-day movements. However, the data didn’t stop the Federal Reserve from upgrading its outlook for the economy at the conclusion of its monetary policy meeting on Wednesday, nor did its decision to hold off on a rate hike prevent the benchmark 10-year Treasury yield from topping 3% for the first time since May. Traders also had to grapple with an announcement from the White House that it’s considering increasing already-proposed tariffs on $200 billion in Chinese imports to 25% (from 10%), to which China responded with plans to impose similar levies on $60 billion in U.S. goods. Elsewhere, another week of generally strong corporate earnings helped U.S. indexes hold up better than their foreign counterparts and saw Apple become the first company in history to breach the $1 trillion level in market value—an amount greater than the GDP of most nations!

Foreign indexes gapped lower for the week, led to the downside by the Shanghai Composite, which was off 4.6% despite a pledge from China’s central bank to continue prudent monetary policy in the latter half of 2018 to ensure economic and financial stability. The Bank of Japan left its ultra-loose monetary in place when it met early in the week, and followed that up with an unexpected intervention in the country’s government bond auction to stem a selloff that had pushed yields up to 18-month highs.  European stock markets fared modestly better than their Asian counterparts but still finished in the red, due in part to data that showed the regional economy weakened in the second quarter as exports fell along with business confidence. “Structural and political concerns in Europe suggest caution when considering an allocation to European equities,” noted LPL Chief Investment Strategist John Lynch, “and valuations remain elevated relative to both U.S. and emerging markets stocks.”

Next week’s economic calendar is relatively light, but Wednesday’s oil inventory reports will be on investors’ radars, along with U.S. consumer and producer inflation later in the week. Overseas, China’s trade balance figures and foreign reserves will be worth monitoring, but global docket includes other important indicators, which you can access on our Weekly Global Economic & Policy Calendar.


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