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The Global Markets Weekly – 9/7/18
Hotter Trade Risks, U.S. Still in Good Shape
Several bombshells last week, capped by President Trump’s announcement that tariffs on another $267B in Chinese imports are “ready to go” just as markets are waiting for details on $200B announced previously. Each announcement has been greeted with little in the way of sustained reaction in the U.S. equity market. With over $500B in products now officially on the table and neither side showing sign of backing down, it may get hotter before tensions are able to cool. Emerging market stocks remained under pressure last week with Chinese shares now down over 25% from January highs.
As for contagion to the U.S., economic data are holding up extremely well, as Friday’s jobs report suggested. August data confirm the U.S. labor market remains on solid footing, and DE believes strong growth conditions can persist for another 2-3 years, better than consensus and Fed expectations barring some shock. Strong underlying demand, profits, and improved balance sheets are key. Q3 growth is tracking 4% or better on many estimates (DE: 3%-plus) after Q2 4.2%.
As global markets remain soggy, the less rate- and economically-sensitive tech sector has driven U.S. market gains in 2018. Explaining divergence, of course, is on its own no guarantee it continues. China’s reaction will be important, as authorities may be able to throw some sand in the cogs of U.S. businesses looking to enter or stay in the domestic market. The largest tech giant’s warning Friday may be instructive.
Key dimensions of DE’s outlook are unchanged, with two more rate hikes from the Fed this year, three more in 2019.
Coming Week’s Key Indicators and Events
| Release | DE / Consensus | Comment | |
| U.S. | Aug CPI (Th)
Core CPI Aug Retail Sales (Fr) Ex-autos |
0.3% / 0.3%
(2.8%/ 2.8% y/y) 0.2% / 0.2% 0.5% / 0.5% 0.6% / 0.5% |
Price inflation begins decelerating into year-end, as expected. Core run rate more important, 2.1% on trailing 6m ann.
Retail performance good, sentiment on autos and housing deteriorating sharply. |
| Euro | ECB Decision (Th) | Hold / Hold | Few surprises with asset purchases set to wind down. Fresh economic projections incl. trade risk? |
| UK | BoE Rate Decision (Th) | Hold / Hold | Long pause after last month’s hike, bias toward more but on hold into 2019. |
| Japan | GDP Revision (Mo)
|
0.6% / 0.7% q/q | Upgrade from initial 0.5% q/q, machinery orders also due this week. |
| China | CPI (Mo)
Aug Retail Sales (Fr) Aug IP (Fr) |
2.2% / 2.1% y/y
9.4% / 9.3% y/y 6.6% / 6.6% y/y |
Last week’s PMIs upbeat, looking to China for stability amid EM turmoil. |
| Turkey | Q2 GDP (Mo)
Rate Decision (Th) |
NA/5.3% y/y
+450bps/+300bps |
A catchup hike in the face of current turmoil, growth decelerates markedly. |
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