September 14, 2018

Stocks opened higher again this morning, but quickly gave way after a report that President Trump wants additional trade tariffs on Chinese imported goods. Here we go again; all the news-algorithm traders just hit the sell button. The Dow and SPX are currently down 38 pts and .1%, respectively. Up until a few moments ago, transports, banks and semiconductors were the best performing groups in early trading. Foreign stock markets—even emerging markets—are trading higher on US dollar weakness as well as action by the Turkish government to stem their budding financial crisis. European markets are poised to close up by about .4% and Asia was broadly positive overnight. WTI crude oil is unchanged at about $68.60/barrel. Bonds are selling off as interest rates resume their slow slog upward. The 5-year Treasury yield ticked up to 2.90%, the highest since May. The 10-year Treasury yield just moved back to 3.0%. It seems that whenever we get some positive economic news overseas, US Treasury yields rise. That’s because foreign investors often look to Treasuries as a safe haven investment when times are uncertain in their own countries.

US retail sales rose a mere .1% in August from prior month levels; economists were projecting a larger .4% gain. The culprit: softer auto sales. Excluding autos, retail sales posted a .3% gain vs. .5% expected. That’s the headline, but it’s misleading because July sales were revised significantly higher. In addition, the headline number ignores the trend. Taking a step back and looking at year-over-year growth, retail sales have been accelerating pretty much all year, rising 6.6% in August from year-ago levels. That’s very healthy, and clearly above trend for the past five years.

China published some economic data last night suggesting slowing momentum. Fixed-asset investment rose 5.3% from year-ago levels, continuing its nine-year gradual down-trend. The main culprit is falling infrastructure investment. Retail sales are growing nicely—up 9.3% y/y—but the rate of growth has decelerated over the last year. Citigroup’s China Economic Surprise Index has fallen to -21, suggesting economic data are coming in somewhat below expectations.

We also got some data on trade. US import and export prices suggest inflation is moderating in the face of a stronger US dollar. On a year-over-year basis, import price inflation decelerated in August to 3.7% growth from 4.9% in the prior month. Export price inflation slowed to 3.6% from 4.3% in July. This corroborates other recent inflation data, which together will take a little pressure off of the Federal Reserve to continue hiking interest rates.

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