Stocks rose this week as both the U.S. and China signaled some willingness to compromise on trade, ahead of a planned meeting in early October. President Trump choose to delay tariff increases scheduled for October 1st and China exempted soybean and pork imports from tariffs. Still the increased optimism may need a reality check as the two nations are far apart on China’s treatment of intellectual property, investment restrictions on U.S. businesses and China’s state owned enterprises. Also, China sought to separate national security issues from the trade talks and it is unknown if the Trump administration is willing to do this.
The European Central Bank cut interest rates and restarted quantitative easing to stem the apparent slowdown. The key interest rate was cut from -0.4% to -0.5%. The ECB said it would not raise interest rates “until it has seen the inflation outlook robustly converge” with its 2% inflation target. Growth in the eurozone has been about half that of the U.S. ECB president, Mario Draghi, ends his term on October 31st being succeeded by former International Monetary Fund Managing Director, Christine Lagarde.
The week also saw strong economic data with lower first time claims for unemployment and robust consumer spending data. Crude oil and gold prices fell. The dollar declined against a basket of currencies and bond yields rose with the 10-year Treasury ending the week at 1.905%.
In economic numbers this week:
- China reported consumer prices rose 2.8% in August from a year ago. The size of the increase was affected by pork prices rising 47% due to African swine fever. Excluding volatile food and energy prices rose a more modest 1.5% in August from a year ago.
- The Commerce Department reported retail sales rose a seasonally adjusted 0.4% in August. This strong report follows a 0.8% rise in July. Vehicle sales rose 1.8%. Without vehicle sales overall retail sales were flat.
- The Labor Department reported:
- First time claims for unemployment fell 15,000 to a seasonally adjusted 204,000 last week. The four week moving average of claims, designed to smooth out weekly fluctuations, fell to 212,500.
- The consumer-price index rose a seasonally adjusted 0.1% in August. Excluding volatile food and energy, prices rose 0.3%. From a year earlier, consumer prices rose 1.7% and excluding food and energy rose 2.4%
- The Energy Information Administration weekly report is here wpsrsummary. Also, the EIA reported in the prior week:
- U.S. Crude oil production was unchanged at 12.4M barrels per day.
- Storage of natural gas rose 78BN cubic feet and is still below the past five year average for this time of year.
- Baker Hughes reported in the past week that the number of active oil rigs fell 5 to 733 and the number of active gas rigs fell 7 to 153.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.