Market Update: Thursday, September 13, 2018


Daily Insights

  • Hurricane Florence. Our thoughts go out to the millions of people that will be affected by Florence over the coming days. Many of you have also been asking what impact hurricanes can have on the markets, so we’d like to offer some insights and reassurance on that front. According to research from CFRA, looking at the 15 hurricanes in U.S. history that caused the most damage from a financial perspective (in other words, the most expensive hurricanes), the S&P 500 Index was down 0.2% a month after the hurricane formed, but was higher by 3.9% on average three months later.

  • New LPL Market Signals Podcast. In case you missed it, listen to Senior Market Strategist Ryan Detrick and special guest Equity Strategist and Portfolio Manager Jeffrey Buchbinder talk about pullbacks in emerging markets, the manufacturing sector’s continued strength, and other factors affecting the current economic cycle. Please join our discussion on social via #LPLMarketSignals.

  • U.S. extends invite to China. U.S. trade officials have reached out to Chinese leaders to arrange talks ahead of the implementation of the next round of tariffs. The news, which helped drive a rebound in emerging market equities overnight, may not stop another round of tariffs on Chinese goods from being implemented. However, the invitation does support the notion that tariffs are a means to an end for the U.S., not a desired outcome. Still, an agreement is unlikely to be reached until after the midterm elections, and additional retaliation from China still seems more likely than not.

  • Trade tensions prominent in Beige Book. The most recent Beige Book, which the Federal Reserve (Fed) released yesterday, echoed the continuation of economic trends evident in other reports. Overall, Beige Book anecdotes suggested moderate economic expansion and a continually tightening labor market amid a skilled labor shortage. Wage growth was modest to moderate, while input prices also rose at a modest to moderate pace. Trade uncertainty was a prominent theme. While tariff impacts have weighed on manufacturing recently (in the form of higher material costs), the anxiety has spread to U.S. businesses more broadly. Multiple districts noted that the uncertainty has prompted some businesses to scale back or postpone capital investment.

  • China’s difficult balancing act. Money supply growth, loan growth, and shadow banking activity in China all slowed in August, as China tries to strike a difficult balance between reining in risks in financial markets and offsetting the threat of a trade war. Chinese officials have been trying to stimulate loan growth, unsuccessfully, though debt financing helped fill the gap in August. Overall, we believe monetary conditions are accommodating enough to support near-term economic growth in China in line with expectations (roughly 6.5%) assuming the trade dispute does not escalate into a full-blown trade war.

  • No change to ECB policy; economic growth forecast trimmed. The European Central Bank (ECB) made no change to its monetary policy guidance this morning, as expected, but Mario Draghi did slightly reduce economic growth projections for the euro area this morning (from 1.9% to 1.8% for 2018, from 2.1% to 2.0% for 2019). Though Draghi reiterated that risks are broadly balanced, he noted that uncertainty surrounding protectionism and emerging markets (EM) volatility have gained prominence. The central bank plans to begin reducing bond purchases next month and end all bond purchases by the end of the year, depending on incoming data.

  • Aggressive move from the Turkish central bank. Despite President Erdogan’s calls for lower rates and questions about its independence, the Turkish central bank raised its target interest rate by 625 basis points (6.25%) to 24%, well above Bloomberg’s consensus expectations for a 325 basis point hike. The aggressive move drove a sharp rebound in the lira (which is still down about 40% this year) and is expected to help the country tame double-digit inflation and massive currency outflows. This news, in addition to a stable outlook for South Africa issued by Moody’s, should help buoy sentiment in EM.

  • CPI growth slows. The Consumer Price Index (CPI) rose 0.2% last month, missing consensus estimates for a 0.3% gain. Core CPI, which strips out food and energy prices, climbed 0.1% from July, while year-over-year growth slowed to 2.2%, below consensus estimates for 2.4%. As we’ll discuss later today on the LPL Research blog post, recent inflation reports tell us pricing and wage pressures remain manageable, and the economy has ample time before these pressures weigh on output.


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  • Retail Sales (MoM, Aug)
  • Import Price Indexes (MoM, Aug)
  • Export Price Indexes (MoM, Aug)
  • Industrial Production (MoM, Aug)
  • Eurozone Trade Balance (Jul)


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Index data obtained via FactSet


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