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Weekly Market Review – 10/1/2018

Last week brought a full economic calendar, FOMC meetings, trade conflict, oil market turmoil, and difficult to watch partisan rancor in Washington.  U.S. equity markets traded down, finally seeming to acknowledge escalating trade conflict while European market volatility climbed on the rising populist tide in Italy.  Russia and Saudi Arabia decided to maintain production levels which led to an increase in global oil prices given looming Iranian sanctions and challenges in Libya/Venezuela.  One of our research outlets reminded us that just because the world feels crazy does not mean the stock market is obliged to behave the same way.

 

Market Anecdotes

  • The Fed delivered an expected 0.25% rate hike last week to 2.125%.  Strong growth and capacity constraints colored the statement, speaking to their resolve toward increasing rates.  One notable was removing reference to policy being accommodative.  This was downplayed in the presser but regardless, it does mean they view the current level as close to ‘neutral’.
  • The Fed made no changes to their rate hike forecasts with 2019 (3), 2020 (1), and 2021 (0) remaining the same.  Fed inflation forecasts remained the same, but growth estimates moved slightly higher with 2018 at 3.1% (2.8%) and 2019 at 2.5% (2.4%).
  • Tame PCE and growth indications released last week gave dovish Fed critics something to cite moving forward.
  • Trade...we signed a deal with South Korea and began negotiating with Japan last week.  The U.S. and Mexico agreed on preliminary terms and Canada indicated they have something workable over the weekend.  U.S. - Sino tariffs are now in effect and “protectionist”/”trade bullyism” rhetoric ramped up last week.
  • Shinzo Abe (Japan PM) won a third consecutive term last week and has now been in office for longer than the previous five PMs combined. If he completes his new term through 2021, he would be the longest serving PM since the job was created in 1885.

 

Economic Release Highlights

  • August headline and core PCE were tame leaving yoy increases at 2.2% and 2% respectively.
  • August personal income and outlays both climbed a modest 0.3%.
  • Final estimated 2Q GDP of 4.2% was highlighted by robust 3.8% consumer spending and 8.75% growth in non-residential fixed investment.  The Atlanta Fed 3Q GDP estimate stands at 3.6%.
  • The Conference Board consumer confidence reading spiked higher to 138.4, closing in on the all-time high of 144 in 2000.
  • UofM September consumer sentiment climbed to 100.1 from August’s 96.2 level.  Income optimism across all income levels got a lift from declining inflation expectations and is now at its highest level since 2004.
  • Another capex indication from August headline durable goods showed a strong 4.5% gain on strong aircraft orders but ex-aviation, the number only increased 0.1%.
  • Case Shiller Home Price Index continued to signal soft pricing across most metro regions, edging up only 0.1%m/m but still sitting up 5.9%y/y.
  • August new home sales hit expectations at 629k but June and July were revised sharply lower and August pending home sales fell 1.8%.

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