Stocks opened modestly higher this morning (Dow +38 pts; SPX +.16%). Defensive sectors—utilities, consumer staples, real estate—are leading way. On the other hand, energy, industrials and tech are flat to down in early trading. The VIX Index is holding its ground at 21.8 and VIX September futures are trading at 20.4. So despite incredibly bearish financial news media coverage, trading aren’t panicking. European markets will close slightly lower, whereas Asian markets were mostly higher overnight. Oil is down in price again; WTI crude is down 1% to trade around $54.60/barrel. The dollar is stronger after hints by an official at the European Central Bank (ECB) that a bigger monetary stimulus package is coming. Bonds are trading uniformly higher today as yields continue to drop. Junk bonds are up about .25% after some better than expected reports on the economy. But Treasuries are also catching a bid. The 10-year Treasury Note yield has fallen to just 1.55%, the lowest since September 2016.

We got a raft of economic data this morning. US retail sales spiked .7% in July from prior month levels, proving consumers are in good shape. Economists were projecting a much smaller .3% gain. On a year-over-year basis, retail sales is up 3.4% and has been gradually accelerating for the past two months. As recently as last December, retail sales were barely growing. On the other hand, industrial production declined .2% last month. One key component of production, manufacturing, fell .4% from prior month levels. Production is now down on a year-over-year basis as well. Digging into the details, consumer goods production held up OK, but business equipment production clearly softened. I could go further, but the point is that the consumer economy is fairly robust but the trade war and slower growth overseas is hurting business investment. The latest ISM Manufacturing Index report corroborates this conclusion. Is it some comfort that about 70% of US economic activity is driven by consumers.

China is sending some mixed signals on trade war policy. Yesterday, a Chinese trade tariff official characterized President Trump’s new round of trade tariffs as a violation of a previous agreement between the two sides, and said China “has no choice but to take necessary measures to retaliate.” Today, a regime spokesman said weakly that “We hope the US side will meet China half-way, and implement the consensus reached by the two leaders during their meeting in Osaka.” Oddly, some US news outlets chose to interpret that statement as an attempt by the Chinese side to soften its hardline stance.

Cisco Systems (CSCO) reported second quarter results in line with Wall Street forecasts. Revenue rose 5% from year-ago levels and profits grew 19%. Unfortunately, management’s guidance for the third quarter was weaker than expected. The CEO explained that business in China has dried up and state-owned enterprises have shunned Cisco as a supplier. Sales to Chinese customers fell 25% during the quarter and may not recover any time soon. “While it’s a small part of our business, when it falls off that precipitously, it creates a challenge.” The stock is down 7.5% this morning.

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