- US stocks rebounded from previous week’s decline but pressured below previous peaks
- US 10-year yield returns to 3%
- Dollar rallies but remains below its broken uptrend line
- Oil moves sideways despite rising price concerns
Though US stocks rose for the week, bouncing off a 1 percent setback from the previous week, the trade war narrative continues to roil. Indeed, reports midday Friday indicated that US President Donald Trump instructed aides to go ahead with taxing an additional $200 billion of Chinese goods.
US equity indices fell on the news, but the S&P 500, Dow, and Russell 2000 all closed marginally higher at the end of the day, while the NASDAQ Composite lost a paltry 0.05%. The fact that traders generally bought the dip—and remained committed to it over the weekend—supports the argument we've made repeatedly that the outlook for this aging bull market to continue higher is playing out. Clearly traders are willing to ride out any market risk on the fundamentals and technicals while brushing aside the geopolitical headwinds as not having a lasting impact on the economy and markets.
On a less optimistic note, the return from summer vacation and the broader participation it brings has yet failed to overcome the S&P 500's late August record on thin trading, a potential warning sign, especially with Friday’s hanging man for the index. That's bearish with a confirmation of a closer beneath the candle’s real body.
The benchmark index eked out a 0.03 percent gain, clocking a fifth consecutive day of gains, with Financials, Energy, and Industrials all advancing. Real Estate underperformed, falling 0.86 percent.
The Dow Jones Industrial Average also crawled up 0.3 percent, exactly the same as the SPX. The NASDAQ Composite underperformed, the only major US index to decline, and the Russell 2000 outperformed, gaining 0.47 percent.
Dollar Back On Track
In currency markets, the dollar gained, rebounding from a near one-and-a-half month low, spurred by positive economic data. Higher Treasury yields, the 10-year yield touched 3 percent for the first time in six weeks, also attracted foreign investors, forcing them to go through FX exchanges in order to buy the dollar first.
An array of economic releases at the end of last week painted a mixed, albeit still positive picture for US economic growth. Although domestic retail sales rose only 0.1 percent in August, the smallest gains in six months, July figures were revised higher, supporting the outlook for continued consumer spending in the third quarter.
Consumer spending makes up two-thirds of the US GDP and is expected to remain robust, according to the University of Michigan. Another bright spot, Industrial output increased by 0.4 percent last month. Friday's data offset inflation data, also released last week, which disappointed, causing traders to dial back their bets that inflation is accelerating, analysts said.
Nevertheless, the world's reserve currency was still on track for a weekly loss. Reduced trade tensions between China and the United States, at least for the moment, together with encouraging developments between Britain and the European Union on terms for Britain's exit from the economic bloc, pared safe haven demand for the dollar.
The euro climbed to a two-week high early Friday, following the disappointing U.S. inflation data, but then retreated against the greenback. The common currency was down 0.5 percent at $1.1632.
Sterling finished the week 0.4 percent lower, at $1.3067, after hitting $1.3145 earlier on Friday, its highest level since July 31, according to Reuters data. Brexit talks are set to intensify over the coming week, with the first of three summits scheduled. EU leaders hope this will help all parties settle an agreement for Britain's departure from the economic union within the next two months.
The Chinese yuan added to its earlier drop against the dollar in offshore trading on Friday after the news of Trump's additional tariffs broke. The offshore yuan was down 0.45 percent at 6.876 per dollar.
The US administration continues to pressure Russia about managing soaring oil prices, after WTI reached over $70 Wednesday, as it feels the heat of rising gas prices ahead of crucial mid-term congressional elections in November.
Technically, while the price of oil has managed to crawl back above the uptrend line since mid-February, it has failed, twice, to overcome the early July, $75 peak, demonstrating weakness.
Week Ahead
All times are EDT
Monday
5:00: Eurozone – Core CPI (August): forecast to rise 0.2% MoM from -0.5%.
8:30: US – NY Empire State Manufacturing Index (September): index to fall to 23.2 from 25.6
Tuesday
16:30: US – API Weekly Crude Oil Stock: Previous -8.636
19:50: Japan – Trade Balance (August): July deficit of Y232 billion to fall to a deficit of Y469 billion.
23:00: Japan – BoJ Rate Decision: expected to remain at -0.10 percent.
Wednesday
4:30: UK – CPI (August): CPI to rise 2.4% YoY from 2.5%, and 0.5% MoM from 0%. Core to be 1.8% YoY from 1.9%.
8:30: US – Housing Starts and Building Permits (August): starts to rise 5.8% from 0.9% MoM; permits to fall to -0.1% from 1.5% MoM
10:30: US – EIA Crude Inventories (W/E 14 September): stockpiles forecast to fall to -0.805M barrels, from a 5.296M barrels drop a week earlier.
Thursday
4:30: UK – Retail Sales (August): sales to fall to -0.1% from 0.7% MoM and to drop to 2.3% 3.5% YoY.
8:30: US – Initial Jobless Claims (W/E 15 September), Philadelphia Fed index: claims to rise to 210K from 204K, while the Philly Fed index rises to 16.3 from 11.9.
10:00: Eurozone – Consumer Confidence (September): confidence index to fall to -2.0 from -1.9.
10:00: US – Existing Home Sales (August): forecast to rise to 5.39M from 5.34M.
19:30: Japan – CPI (August): CPI to be 1% YoY from 0.9%, and core CPI to be 0.9% YoY from 0.8%.
20:30; Japan – Manufacturing PMI (September, Flash): index to rise to 53.1 from 52.5.
Friday
4:00 – 5:00 – French, German, Eurozone Manufacturing and Services PMI (September, Flash): French services PMI to remain flat at 55.4, and manufacturing to remain steady as well at 53.5. German services PMI to rise to 55.1 from 55 and manufacturing to fall to 55.8 from 55.9. Eurozone services PMI to hold at 54.4 and manufacturing to fall to 54.4 from 54.6.
8:30: Canada – CPI (August), Retail Sales (July): CPI to be 2.9% YoY from 3% and -0.1% MoM from 0.5%. Core CPI to be 1.5% YoY from 1.6%. Retail sales to rise 0.4% MoM from -0.2%.
9:45: US – Manufacturing and Services PMI (September, Flash): manufacturing to climb to 55.1 from 54.7, and services to advance to 54.9 from 54.8.