Investors Encouraged by Trade and Brexit – For Now. What’s Next?

Equities rose for the first time in four weeks on rising optimism that the U.S. and China are making constructive progress in their restarted trade negotiations. As we learned on Friday, the scope of what was agreed to was quite limited, as expected, but it is a start. China apparently agreed to buy more U.S. agricultural products and the U.S. agreed to suspend the tariff increase scheduled to take effect this week. But China wants to discuss further the so-called phase one agreement before the end of the month to hammer out the details before it can be finalized.

Trade, Earnings and Weak Data Weigh on Investors’ Minds

Last week, the Citi Economic Surprise Index for the U.S. declined for the first time in fourteen weeks, dating back to June 28. Pushing the index lower was a virtually uninterrupted string of weaker than expected economic reports, beginning with the ISM report on manufacturing activity. Instead of bouncing back to a growth reading as expected, after slipping into contraction in August, the index fell even further as the manufacturing sector remains under pressure from trade policy and sluggish global economic activity. That was followed by an equally surprising slowdown in the service sector activity report, although it continues to grow. But it was the weakest reading in three years. Factory orders also disappointed, and private sector capital goods orders for August were even weaker than indicated in the preliminary estimate. 

Markets Have Been Resilient – How Long Can it Last?

Stocks slumped on Friday following reports that the White House was considering delisting Chinese companies from American exchanges, and restricting U.S. investors from investing in companies listed in China, thus depriving them of American capital. This latest salvo in the ongoing trade war between the two countries comes just two weeks ahead of the next round of scheduled talks. Along with the launch of an impeachment inquiry by the House of Representatives, the news from Washington last week was enough to make one’s head spin.

Trade Uncertainty Continues to Weigh on the Fed

The Federal Reserve lowered the overnight interest rate once again last week. It was the second quarter-point reduction in this easing cycle, following the first in late July. Highlighting the divergence of opinion regarding the outlook for the economy, there were three dissenting votes. One was cast by a participant who preferred a half-point rate cut, and two who preferred no cut at all. 

Investors Respond to Strikes on the Saudi Arabia Oil Facilities

The weekend attack on Saudi oil facilities quickly deflected attention away from what had been a building renewal of risk appetites among global investors. In early Monday trading, Brent crude futures were trading higher by $5.21, or 8.6 percent, to $65.48 a barrel. West Texas Intermediate was trading at $59.46 a barrel, higher by $4.59. Both benchmarks had traded even higher at the opening.