Weekly Update 8/31/2018 –Trade Returns to the Spotlight

US: S&P 500 Index  +0.9%, Dow +0.1%, Nasdaq +2.1%
Europe: STOXX Europe 600 -0.3%, German DAX -0.3% France CAC 40 -0.5%, U.K. FTSE 100 -0.8%
Asia: Japan Nikkei 1.2%, China Shanghai Composite -0.2%, Korea KOSPI  1.3%
Rates/Commodities: 10-Year Treasury yield +4 basis points to 2.86%, WTI crude oil 1.7%, COMEX gold -0.6%

Trade negotiations between the U.S. and several of its key trading partners returned to center stage this week. Progress was mixed, as were global stocks’ performance. Investors had an appetite for risk early in the week when an announcement was made that the U.S. and Mexico struck a trade deal, which was followed by concessions to the U.S. from both Canada and the European Union (EU) in an effort to advance their respective negotiations.

Strength in the technology sector propelled U.S. equities higher, with the Nasdaq Composite crossing the 8,000 level, while the S&P 500 Index moved further into record territory on its way to notching a fifth straight monthly gain, finishing the usually tricky month of August up more than 3%.

Abroad, European equities gained earlier in the week, led by banks and auto-related firms that stand to benefit from the new trade terms between the U.S. and Mexico. These gains slipped away later in the week after President Trump indicated the EU’s proposal to scrap tariffs on all industrial-related goods (including autos) was insufficient. Adding to the selling pressure was weaker-than-expected regional inflation data and reports showing a deterioration in the business climate and economic confidence. Stocks in Asia held up better than their European counterparts with major indexes in Japan, India, and Korea finishing the week up more than 1%. Emerging-market stocks also posted a weekly gain, as an unexpected pickup in Chinese manufacturing activity helped to offset news that President Trump intends to proceed with levying tariffs on an additional $200 billion in Chinese imports. On China, LPL chief investment strategist John Lynch noted “The data indicate that China’s economy remains in expansionary territory, but it may be starting to feel the impact of U.S. tariffs with export orders declining for a third straight month. That, combined with President Trump’s announcement to add levies to an additional $200 billion in imports, could compel China to restart negotiations in earnest. We continue to expect the two sides to reach an agreement.”

Amid a holiday-shortened week in the U.S., Friday’s monthly nonfarm payrolls report is the highlight of the economic docket. Services and manufacturing data due out in the U.S., Eurozone, and Japan will also help investors gauge the health of the global economy. Track these and other important events on our Weekly Global Economic & Policy Calendar.

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