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Weekly Market Digest: Markets Experience Fleeting Gains on China Developments

Equities rallied early in the week when it appeared trade tensions were easing between the U.S. and China, but the party was short lived. A string of negative global economic data points sent markets lower, with the S&P 500 approaching lows set earlier in the year after the February selloff. Amidst these rising concerns, U.S. investment grade corporate bonds were one of the few places to hide, ending the week in positive territory.

Weekly Returns

S&P 500: 2,600 (-1.3%)
FTSE All-World ex-US (VEU): (-0.5%)
US 10 Year Treasury Yield: 2.89% (+0.04%)
Gold: $1,238 (-0.9%)
USD/EUR: $1.131 (-0.8%)

Major Events

  • Monday – Facing mounting opposition, British Prime Minister Theresa May delayed a parliamentary vote on Brexit.
  • Monday – Apple was banned from selling older iPhones in China due to patent infringement against Qualcomm.
  • Tuesday – China announced it will reduce tariffs on U.S. automobiles from 40% to 15%.
  • Tuesday – Google CEO Sundar Pichai faced questions before the House Judiciary Committee on data privacy and political biases.
  • Wednesday – President Trump’s former lawyer, Michael Cohen, was sentenced to three years in prison after pleading guilty to multiple felony counts.
  • Thursday – The ECB confirmed its plans to end new bond buying in December, while simultaneously cutting its outlook for economic growth.
  • Friday – Chinese industrial production and retail sales both came in lower than expected.

Our Take

After a period of seemingly all negative news, there was some softening in the U.S. and China’s trade dispute earlier in the week. It began when China stated they would reduce tariffs on U.S. automobiles, and gained steam on reports they are redrafting their controversial “Made in China 2025” policy. These developments are certainly a step in the right direction, and markets were up following the news. That said, gains were modest, and in the end global equities finished the week down.

Part of this is because it’s still unclear whether these concessions are the beginning of more substantial changes to come, or whether their only purpose is to delay negotiations on more critical issues. After all, they fail to address the elephant in the room, which is better IP protection and forced technology transfers.

But another reason these gains proved fleeting is concern around slowing global growth. There were a handful of relatively negative economic data points this week, including softer U.S. housing, a reduced growth forecast from the ECB, and weaker than expected industrial production and retail sales out of China.

To be sure, these data points are often volatile and will fluctuate week to week. And when it comes to the U.S., both corporate earnings and employment remain strong. So it’s too early to draw any concrete conclusions about future growth. But some of these areas are worth monitoring. In particular, housing and employment tend to be good indicators of economic health. Any material falloff in these metrics could potentially signal more volatility to come.

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