Talks set to begin. Stocks are down this morning, taking a breather after a volatile start to the week. Investors have focused primarily on trade headlines this week as U.S. and China officials are scheduled to begin face-to-face trade talks today. Reports indicate that China may be interested in a limited trade deal that will at least delay more tariffs, which are scheduled to be implemented later this month and in December.
Global economy continues to muddle along. As we discussed in our September 30 Weekly Market Commentary, “muddle through” aptly characterizes the global economic environment. The global manufacturing purchasing manager’s index (PMI) for September was 49.5, reflecting stagnation. However, the index did deliver its first back-to-back gain since December 2017, the services reading near 52 is expansionary, and monetary policy has become more accommodative globally, helping keep global growth supported amid the ongoing U.S.-China trade conflict.
Signs of life for emerging markets? The MSCI Emerging Markets Index has outperformed the S&P 500 Index by about two percentage points since August 22. Relative strength has been driven by South Korea, Taiwan, and India. Indian stocks have also gotten a boost from the recently announced corporate tax cut. It’s not much, and emerging markets still trails by a wide margin year to date, but gains in other key non-Chinese Asian markets reflect some emerging markets resilience given that the MSCI China Index has slipped about one-half percent during this period, and the U.S. dollar has remained strong. Expected progress on trade, relatively strong economic growth, and low valuations underpin our continued preference for emerging markets equities over developed international.
More dissent within the Fed. Minutes from the Federal Reserve’s (Fed) September meeting showed that while a majority of Fed voting members supported a rate cut at the meeting, “several” participants favored keeping the Fed funds rate unchanged because the economic environment hadn’t changed much since July. There was also discussion on market positioning for future Fed cuts, and a few participants mentioned the Fed may have to better align market expectations with policymakers’ own expectations for the future path of policy. Rate projections (in the “dot plot“) show that 10 of 17 policymakers expect to keep rates unchanged through the end of the year, so the Fed could try to steer markets toward less accommodation in its public commentary going forward.
Consumer inflation still healthy. U.S. consumer inflation still looks healthy, even as global demand weakens and producer price growth declines. The core Consumer Price Index (CPI), which excludes food and energy prices, rose 2.4% year over year in September, tying a cycle-high pace of growth. We’ll dig more into September CPI data today on the LPL Research blog.
NEW October Market Insight Monthly. Economic data improved modestly in a relatively calm September while trade tensions and central bank intervention remained center stage. Learn more about September markets and economic activity in LPL Research’s October Market Insight Monthly.
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