Weekly Update - September 07, 2018
- Stocks retreated around the globe after reports the Trump administration might impose more tariffs on Chinese goods; and after strong U.S. jobs growth cemented the likelihood of steadily rising U.S. interest rates. U.S. government bond prices dropped as a result, driving the 10-year U.S. Treasury yield up to 2.94%. Economic slowing in Europe and Asia pushed the U.S. dollar up against a basket of currencies, including the euro and yen.
- Tariffs and threats of tighter regulation beat down technology stocks but did not stop Amazon from becoming the world’s second trillion-dollar company. Emerging markets fell into bear territory — defined as a 20% decline from a recent peak — pressured by turmoil in Turkey, a rising U.S. dollar and U.S. interest rates, and by faltering commodity prices. Gold, a non yield-producing commodity, lost value as yield-bearing instruments became more attractive. Oil prices fell as the summer travel season ended and inventories began to pile up.
- U.S. economic strength showed convincingly in August as employers added 201,000 new jobs, paychecks grew and unemployment held steady at 3.9%. U.S. payrolls have expanded for 95 straight months, extending what already was the longest streak of job growth on record. The August report makes it more likely the Federal Reserve will raise the Fed funds rate at its September policy meeting, and again in December.
- Average hourly earnings rose 10 cents to $27.16; this amounted to a 2.9% year-over year increase, the strongest rate since the start of the current economic expansion in 2009. While one might expect this to spur inflation, economists noted that with productivity running at 1.2% over the last six quarters and CPI at 2.9%, there is still no significant wage pressure.
- ISM manufacturing PMI rose to 61.3 in August, its highest level in 14 years. New orders, production and employment all increased. By contrast, the final August Markit services PMI read 54.7, down from 55.3 in July.
- Trade tensions pushed down Caixin China General Manufacturing PMI to a 14-month low of 50.6. Nikkei Japan Manufacturing PMI and IHS Markit Eurozone Manufacturing PMI increased slightly. Eurozone PPI increased 0.4% in July, the same as June.