Friday, 13 September 2019

Stocks gained this week after the European Central Bank (ECB) eased its monetary policy and reports suggested that trade tensions between the U.S. and China might be de-escalating ahead of trade talks planned in October.

Stocks

On Wednesday, China said it would exempt a variety of U.S. goods from higher tariffs. In response, President Trump said the U.S. would delay increasing tariffs on $250 billion worth of Chinese goods from October 1st to October 15th. On Thursday, the Dow Jones Industrial Average (DJIA) notched its seventh day of positive returns – the longest run in over a year. Both the Dow and the S&P 500 are trading near their all-time highs. Nine out of the eleven S&P 500 sectors were in the positive this week. Financials and trade-sensitive sectors like energy and industrials were the biggest gainers. However, energy shares pared some of their gains on Thursday after OPEC skirted past discussing production cuts amid rising inventories. The tech sector advanced this week after Apple unveiled its new iPhones and prices for its new streaming platform. Small-cap stocks have also risen significantly this week following rising optimism regarding the U.S. economic outlook. 

Bonds

Government bonds declined amid easing trade tensions between the U.S. and China and a pickup in inflation for August. Strong inflation data also pushed yields higher as inflation impacts real returns. The yield on the benchmark 10-year Treasury note closed at 1.78% keeping the yield-curve out of inversion.

Economy

On Thursday, the ECB cut its key interest rate for the first time since March 2016 by 0.1%, to negative 0.5%, and reinstated its quantitative easing program. The central bank will begin purchasing approximately $22 billion a month in assets starting November 1st “for as long as necessary.” ECB President Mario Draghi said the actions were in response to tepid inflation and “more protracted weakness of the euro area economy.” The Federal Reserve is largely expected to cut its short-term interest rate by 0.25% next week. According to the Labor Department, U.S. job openings, a gauge of the health of the labor market, declined for the second month in a row in July to 3% on a year-over-year basis. However, weekly jobless claims fell more than expected last week to 204,000. Inflation appears to be rising slightly. Core consumer prices, which exclude food and energy prices, rose 2.4% from a year earlier in August – the fastest annual pace since July 2018. Meanwhile, wholesale producer prices, which excludes food, energy, and retail-trade margins, rose to 1.8% in August from a year earlier. 

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Read the full September 12, 2019 report with accompanying charts and graphs. 

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