Market Update: Thursday, August 23, 2018

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Daily Insights

  • U.S. and China talks continue. Secondary players on both sides continue talks today (as additional tariffs on $16 billion in goods on both sides go into effect). Though we remain hopeful for a deal of some sort, negotiations will take some time -potentially through midterm elections. The U.S. will continue to focus on the slowdown in China’s economy for leverage, while China may stall until after the November elections to see if the President’s negotiating position may be weakened. Stay tuned.

  • NAFTA resolution (with Mexico) likely soon. After consistent back-and-forth over the past month, the U.S. and Mexico appear likely to work out their remaining thorny issues; however, Canada is not at the negotiating table, which may push the timeline for a trilateral agreement out several more weeks, if not months. Meanwhile, talks with the European Union continue.

  • Fed’s July meeting focused on neutral rate, trade. Minutes released yesterday from the Federal Reserve’s (Fed’s) last monetary policy meeting indicated members discussed removing language characterizing policy as “accommodative,” and deliberations intensified over estimates for when the “neutral rate” will be reached, reflecting more ambiguity for investors that could interpret the Fed’s leanings as hawkish or dovish. Tariffs and trade remain an “important source of uncertainty and risks” for members. Investors get more clues to the Fed’s thinking tomorrow, as Fed Chair Jerome Powell is slated to speak at the Fed’s annual Economic Policy Symposium in Jackson Hole, Wyoming. The speech will likely be one of the most-publicized Fed speeches of the year, and it’ll be Powell’s first public address since Turkey’s currency turmoil.

  • Europe hanging in. The euro-area composite purchasing managers’ index (PMI) from Markit rose to 54.4 in August from 54.3, essentially in line with Bloomberg’s consensus expectations at 54.5. Germany’s composite PMI rose to 55.7 from 55, beating estimates, while France’s early reading was 55.1, also ahead of expectations, supporting continued growth near 2% in the region.

  • U.S. dollar six-day losing streak in jeopardy. The dollar was up overnight, possibly setting up its first gain in seven sessions based on the DXY U.S. Dollar Index. Ebbing fears around Turkey’s currency crisis, more trade negotiations, and President Trump’s criticism of the Fed’s rate hike campaign have pressured the greenback. Further dollar gains may be limited as trade deals are struck, the Fed gets closer to normalized interest rates, overseas growth outlooks potentially improve, and focus turns back to structural deficits in the U.S.

  • EM stands strong amid currency turmoil. After a healthy start to the year, emerging markets (EM) have struggled amid tariffs, a stronger U.S. dollar, and most recently, Turkey’s economic and political struggles. On today’s LPL Research Blog (and in this week’s Weekly Market Commentary), we analyze the economic impact of Turkey’s currency crisis and EM’s general headwinds, and make a case for why investors should feel optimistic about EM economic growth.

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Thursday

  • Markit Mfg PMI (Aug)
  • New Home Sales (Jul)
  • France: Markit Mfg & Svcs PMI (Aug)
  • Germany: Markit Mfg & Svcs PMI (Aug)
  • Eurozone: Markit Mfg & Svcs PMI (Aug)
  • Eurozone: Consumer Confidence (Aug)
  • Japan: CPI (Jul)

Friday

 

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