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Market in a Minute: September 24-28, 2018

Saturday, September 29, 2018

by Rich and Sheila Jamison

Executive Summary

Equities declined modestly last week as investors digested a flurry of political headlines. The US 10-year Treasury note yield fell back to 3.04% after reaching 3.10% earlier in the week. The price of WTI crude oil rose to $73.20/barrel. Volatility, as measured by the CBOE Volatility Index (VIX), rose to 12.5 from 11.7 the prior week.

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Details

Domestically

On Trade

We signed an updated free trade agreement with South Korea.

Japan has agreed to begin formal negotiations on a US/Japan bilateral trade pact. We agreed not to place tariffs on Japanese auto exports to the US while talks are ongoing.

Publication of the text of the proposed trade deal with Mexico, which starts the clock for congressional approval, is imminent. However, we remain at odds with Canada over a renegotiated NAFTA. Still, we left the door open for Canada to join the pact later this year. (Update: Monday, Oct 1, 5:45 AM. Last minute deal with Canada announced ahead of today’s deadline. New NAFTA will be the United States-Mexico-Canada Agreement – or USMCA for short. It’s expected to be signed by end of November. Then it goes to Congress.)

The ‘beat goes on’ in the trade stalemate with China. Last week, we implemented previously announced tariffs on $200 billion worth of Chinese goods. That triggered the Chinese to impose retaliatory tariffs on $60 billion worth of American products and the cancel trade talks that had been scheduled for later in the week. Relations perhaps worsened further after President Trump accused the Chinese government of interfering with our upcoming midterm congressional elections.

Interest Rates

As had been widely anticipated, the Federal Reserve raised the federal funds target to a range of between 2.00% and 2.25%. This was the eighth hike since the tightening cycle began in December 2015. The Fed is expected to maintain its gradual pace of tightening, despite removing the word 'accommodative' from its policy statement. FOMC members indicate they anticipate hiking once more in 2018 and three times in 2019. Fed chair Jerome Powell described our economy as strong, with growth running at a healthy clip, unemployment low, wages rising and inflation low and stable.

Confidence Levels

The Conference Board's September consumer confidence index surged to an 18-year high, rising to 138.4. Its all-time high was 144.7, set in May 2000. So far, rising interest rates and a US/China trade war haven’t dampened consumers’ ‘animal spirits.’ However, business confidence appears to be cooling. A recent Business Roundtable survey of CEOs showed that investment and hiring plans are beginning to be trimmed from elevated levels amid global trade tensions.

Corporate Events

Comcast paid $40 billion to win a bid for European broadcaster Sky, ending a two-year battle with 21st Century Fox.

Facebook disclosed another "security issue" – this one affecting 50 million users.

Tesla's CEO, Elon Musk, was sued by the SEC on Thursday evening over his tweet about taking the electric automaker private. Reportedly, Musk and the SEC were close to reaching a “no-admit, no-deny” settlement that would have barred him from being Tesla’s chair for two years. Musk backed out at the last minute. The SEC suit wants to bar him from ever being a corporate officer or director of any public company. Saturday, a settlement was announced that will let him remain as CEO of Tesla but he’ll relinquish his chairman’s role within 45 days.

Globally

OPEC was in focus on Monday after it and several non-OPEC nations failed to reach an agreement to increase output to counter the US sanctions-induced reduction in Iranian supply. President Trump criticized OPEC in front of the UN General Assembly on Tuesday, saying the oil cartel is "ripping off the rest of the world" by colluding to limit supply and prop up prices.

Italy's ongoing budget process has caused concern that the new populist government will break EU deficit caps. As that process approaches a conclusion, those concerns seem well founded. Italy's technocratic finance minister, Giovanni Tria, has been trying to keep the spending ambitions of the ruling coalition under control. Tria first proposed a deficit of 1.6% of GDP, and then raised that cap to 2% under pressure from both factions of the coalition. On Friday, the government agreed to a deficit target of 2.4%, three times the 2018 target of 0.8%. The larger deficits will fund an earlier retirement age as well as a so-called citizen's income, a variation on a universal basic income. Should spending exceed the EU's 3% deficit cap, confidence in Italy's finances, and its continued membership in the euro, could come into question.


Sources:
The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; BBC News; The Associated Press; Reuters.com; Crain’s New York Business; MFS research; NYSE; NASDAQ; Dorsey-Wright Associates; NYMEX.com; CNBC’s Power Lunch & Squawk Box programs; Investing.com; Markit.com; the New York Times; Standardandpoors.com; Djindexes.com; 247wallstreet.com; MarketWatch.com; Morningstar.com; Thomsonreuters.com; the Financial Times.com; Briefing.com; BusinessWeek.com; Dol.gov; Fxstreet.com; Streetinsider.com; Ycharts.com;
 
The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.
Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities, whenever mentioned, are for illustrative purposes only and may not be relied upon as investment advice.
All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.
Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.
Past performance is no guarantee of future results.
 
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