Stocks higher after China urges calm. Beijing indicated it would hold off on retaliating against President Trump’s latest tariff hike because it preferred to discuss removing the extra duties. Both sides have indicated September talks are on, reportedly on U.S. soil, although U.S. officials have been noncommittal about whether that meeting is officially on the books. European stocks are also getting a boost from a potentially market-friendly government coalition being formed in Italy.
Global trade slows further. World trade volumes contracted in June and the second quarter as the U.S-China trade conflict impacted the amount of goods crossing borders. As we’ll discuss today on the LPL Research blog, the slowdown in global trade has been significant since President Trump first slapped tariffs on washing machines in February 2018, and followed up with tariffs on Chinese imports in March 2018. We believe that the economic pain being inflicted on the United States and China during this conflict will lead to an eventual agreement, though we acknowledge the increasing risk that the conflict drags on well into 2020.
GDP revised downwards. Gross domestic product (GDP) growth was revised to 2%, down from the 2.1% initially reported in July. Consumer spending added 3.1 percentage points to overall growth, while trade and inventories were a 1.6 percentage point drag. Business spending was still a slight drag on growth, according to the revised data. Overall, the story behind the numbers didn’t change much, and we expect GDP growth to moderate in the second half of 2019. Until trade progress is made, expect monetary and fiscal stimulus and a healthy U.S. consumer to help keep the economic expansion going and provide support for U.S. stocks.
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