Daily Market Color September 5, 2018Trade Concerns Magnified as Deficit Grows Jeff Davenport Trade Gap Widens (America Not First Yet) Today’s report on trade from the Commerce Department confirmed the ongoing trade deficit the US faces with its counterparties around the world. On a seasonally-adjusted basis, the overall US trade deficit rose to a five-month high of $50.08 billion during July. It was a 9.5% increase from the prior month, representing the largest monthly jump since March 2015. The particularly sensitive trading relationships with China and Canada did not receive any relief within the data, as the deficit with China reached a record high ($36.8 billion) and the gap with Canada hit its widest in nearly a decade ($3.1 billion). The US dollar declined 0.3% against major currencies on the day. Dove Amongst the Hawks For the second time in as many days, today St. Louis Fed President James Bullard (non-voter) publicly expressed his preference to put a hold on the hiking of benchmark borrowing rates for the foreseeable future. Despite recent inflationary and employment data meeting the goals of the Fed’s dual mandate, Bullard reasoned that the current state of financial markets serves as a better barometer for the necessity to tighten monetary policy. “Handled properly, current financial market information can provide the basis for a better forward-looking monetary policy strategy,” Bullard stated. The “yield curve, for instance, is very flat. I’d rather not see an inverted yield curve in the U.S. That’s usually a harbinger of a slowdown ahead.” The spread between 2- and 10-year Treasury yields currently sits near its lowest levels of the past decade at 24bps and touched as low as 19bps just two weeks ago. Yields/swap rates held within a tight range throughout today’s session, with the 10-year note yield closing slightly above 2.90%. Social Media Scrutiny Facebook COO Sheryl Sandberg and Twitter CEO Jack Dorsey appeared before the Senate Intelligence Committee this morning to answer questions related to the security of their respective platforms. Many of the topics targeted the handling of foreign accounts and the ability of each firm to separate authentic users from automated bots, the latter of which have been and could continue to be used to incite violence, manipulate politics, and steal private user data. Both Sandberg and Dorsey acknowledged faults in their firms’ past actions: “We were too slow to spot this and too slow to act, we’re getting better at finding and combatting our adversaries from financially-motivated troll farms to sophisticated military intelligence operations” -Sandberg “We now possess a deeper understanding of both the scope and tactics used by malicious actors to manipulate our platform and sow division across Twitter more broadly” -Dorsey Shares of Facebook (-2.33%) and Twitter (-6.06%) led a broad decline in tech stocks throughout the trading session, with the Nasdaq closing in the red, down 1.19%. The S&P 500 didn’t fare much better, finishing 0.28% lower on the day, while the DJIA managed to eek out a 0.09% gain.
