Weekly Update 9/14/2018 – Central Bank Meetings Abound, but Trade Still the Focus

US: S&P 500 Index +1.2%, Dow +0.9%, Nasdaq +1.4%
Europe: STOXX Europe 600 +1.1%, German DAX +1.4% France CAC 40 +1.9%, U.K. FTSE 100 +0.36%
Asia: Japan Nikkei +3.5%, China Shanghai Composite -0.8%, Korea KOSPI  +1.6%
Rates/Commodities: 10-Year Treasury yield +5 basis points to 2.99%, WTI crude oil +1.3%, COMEX gold +0.4%

It was a mostly upbeat week for global markets as investors moved back into the market, pushing regional equity indexes up and bond prices down. Monetary policy meetings were held by the central banks of Europe, England, Russia, and Turkey. The outcomes were mostly as expected, with the exception of Turkey, which succumbed to market pressure to increase rates amid soaring inflation. Still, traders looked mostly to economic data and developments in U.S.—China trade tensions for direction.

U.S. stocks gained amid a series of data that suggested the economy remains on firm footing. Reports showed consumer spending increasing, manufacturing strengthening, and small business optimism at record highs. However, the Federal Reserve’s Beige Book showed concerns around trade tensions have prompted some businesses to scale back or postpone spending. Investors turned cautiously optimistic later in the week after reports surfaced that U.S. trade officials were looking to arrange another round of trade talks with Chinese leaders ahead of the implementation of additional tariffs. Elsewhere, Treasury prices fell—pushing the yield on the benchmark 10-year note back above 3%—as money flowed back into riskier investments. Several catalysts, including weather-related concerns, led to a short-lived spike in oil prices.

Turning abroad, equity gains in Europe and Asia came amid choppy trading, though Japan’s Nikkei rallied more than 3% on the week on the heels of the U.S.—China trade developments, as well as yen weakness (a positive for its heavily export-oriented economy) and an upgrade of the government’s outlook for business spending. On the other hand, losses in Chinese stocks prevented a rebound in the broader emerging markets after the MSCI Emerging Markets Index fell into bear market territory last week, a topic we covered in this week’s Market Signals podcast. Addressing the potential trade talks, LPL chief investment strategist John Lynch noted “More U.S.—China trade negotiations 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.”

Next week, U.S. data to monitor include the Leading Economic Indicators Index on Thursday, Markit Manufacturing Purchasing Managers’ Index (PMI) slated for Friday, and several sets of housing data spread throughout the week. Overseas, PMI data will be released for Japan and the Eurozone, along with consumer inflation readings in both regions. Track these and other important events on our Weekly Global Economic & Policy Calendar.

 

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