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AUTHOR: Jason J. Roque, CFP®, APMA®
TITLE: Investment Adviser Rep – CCO TAGS: TRADE, FRB, INTEREST RATES |
Last week markets gained as concerns seemed to subside. Was this renewed hope founded?
US/China
For the first time since the beginning of May, there were signs of life in US/China talks. July 30th and 31st, a senior US trade delegation will go to China to meet and discuss the dispute. The US wants to pick up as they left off, whereas, China wants tariffs removed, levied earlier this year. There is a long way to go to a deal, but this is a good first step.
Central Banks
The European Central Bank (ECB) met last week and indicated they will be cutting rates in September. They also indicated a commitment to keeping rates low until the EU economy strengthens. The Bank of Japan (BOJ) meets this week and are expected to echo this sentiment. All of this right before the Federal Reserve Board (FRB) meets this week. They as well, are expected to cut rates. Between the ECB, BOJ, and FRB all of these major developed economies are signaling monetary easing.
Economic Data
Jobs data for the week was strong. Initial claims fell to 206K. The lowest level in several months. Also, the rate of initial claims have been low for an extended period, signaling continued strength in the economy. Durable Goods orders rose an impressive 2% in June[1]. This is a good signal for a potential strengthening of economic growth. New Home Sales rose 7% through June[2]. Strength in the new home market is a good sign for jobs.
Not All Roses
Existing Home Sales fell last month and they represent 90% of the market.
Boris Johnson won the election to become the UK’s next Prime Minister. It is a negative because of the uncertainty it sparks. Parliament voted that a no deal Brexit is not an option, however, Boris Johnson supports a no deal Brexit.
Germany Manufacturing PMI fell even further in June, coming in at 43.1, down from 45[3]. Manufacturing PMI is considered to be contractionary when it falls below 50. With a recession in the EU’s largest economy, the EU’s actions make sense in an effort to stimulate the economy.
Conclusion
Trade talks are talks, not a deal. Central banks adding stimulus means current economic activity is concerning. Jobs are a lagging indicator, telling us how we have done. Durable goods orders, while impressive, still only reflect one month. A trend has yet to be created. New homes only represent 10% of the market and the vast majority of the market is beginning to soften.
It is not all terrible either. The intent here is to make sure eyes are wide open. This rally is happening on the back of some not so great news.
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[1] Investing.com/economic-calendar
[2] Investing.com/economic-calendar
[3] Investing.com/economic-calendar