It was a volatile week in the markets:
Monday, the S&P 500 had its biggest drop of the year, falling 3% after China retaliated by announcing zero purchases of U.S. agricultural products by state owned enterprises. The drop was also fueled by the Chinese yuan weakening beyond 7 to the U.S. dollar. While China has in recent years propped up their currency, the recent move raised fears of China weakening their currency to offset the effect of tariffs.
Tuesday, after the U.S. named China a currency manipulator, China did act to stabilize their currency and this alleviated some of the fear.
On Wednesday several central banks unexpectedly cut interest rates. New Zealand and India had bigger cuts than expected and Thailand, who was not expected to cut, reduced interest rates by .25%. At first the markets opened sharply negative, as if the cuts reflected that things are worse than expected, plunging deeply negative. However, markets recovered and ended mixed for the day.
On Thursday stocks rose based on several factors:
- Continued efforts by China to strengthen and stabilize its currency.
- An unexpected rise in Chinese exports.
- An acceleration in growth in France, the second largest economy in the Eurozone.
On Friday stocks fell as President Trump indicated that the meeting with China on trade scheduled for September may not happen as he his not ready to make a deal. He also backtracked on his promise at the G20 meeting to lift the ban on Huawei which affects many U.S. electronics companies.
Despite all the volatility, stocks ended the week with gains. However, we believe this trade conflict will not be resolved soon, with China stalling for the U.S. election in hopes of getting a better deal. Also, the September tariffs have the potential to harm consumer spending which is the brightest spot in the U.S. economy.
Crude oil prices ended the week down to $54.27 a barrel. The 10-year Treasury yield ended down to 1.625%. The U.S. dollar ended down against a basked of currencies but the Chinese Yuan ended at 7.0614 to the dollar. Gold ended the week at $1508 an ounce.
In the numbers this week:
- The Institute for Supply Management reported that its U.S. services PMI fell from 55.1 in June to 53.7 in July. Keep in mind that anything above 50 represents expansion, just at a slower rate of acceleration.
- China’s General Administration of Customs reported that Chinese exports in July were 3.3% above a year ago. In June it had reported a 1.3% year over year decline. While U.S. exports have decreased this was more than offset by increased exports to Europe and Southeast Asia.
- The private Caixin China PMI indexes in July:
- Manufacturing rose from 49.4 in June to 49.9.
- Services fell from 52.0 to 51.6.
- Canada reported losing 24,200 jobs in July, the second month of losses in a row. Unemployment in Canada, using U.S. methodology, rose to 4.6%.
- The Labor Department reported first time claims for unemployment fell 8,000 to a seasonally adjusted 209,000 last week. The four week moving average of claims, designed to smooth out weekly fluctuations, rose to 212,000.
- Factset reported that with 90% of the S&P500 companies reporting results, the blended earnings decline was 0.7%.
- The Energy Information Administration weekly report is here wpsrsummary (2). Also, the EIA reported in the prior week:
- U.S. Crude oil production rose from 12.2MM barrels per day to 12.3M barrels per day.
- Storage of natural gas rose 55BN 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 6 to 764 and the number of active gas rigs fell 2 to 169.
Please call us if you have any questions.
Loren C. Rex, CFP®, AIF®, MA Erik A Smith
President Managing Partner
Generations Financial Planning & Wealth Management 269-441-4143
77 E. Michigan Ave, Suite 140
Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
Toll Free: 800-513-8180
Visit our Website: www.genfinplan.com
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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.