Daily Market Color

Trade Uncertainty Tempers Financial Markets


Risk Assets Can’t Find Footing

Technology shares saw their third consecutive session of declines while Treasurys rallied as financial markets continued to exhibit caution amidst the volatility in emerging markets and ongoing trade tariff uncertainty.  The selloff in emerging markets extended for a seventh day, bringing the year-to-date decline of the MSCI Emerging Markets Index to almost 20% and raising the fear of contagion amongst developing economics.  Argentina, Brazil, and Turkey have been impacted the most within wave of selling, and ETF’s tracking those countries have moved into bear-market territory.  On the positive side, the verbal assault on the tariff battle with China was muted today, albeit there is a looming deadline for comments to be made on the current proposal of additional tariffs on $200 billion worth of Chinese imports.   



Of the major equity indices, the Nasdaq fared the worst, dropping 0.91%, while the S&P 500 declined 0.37% and the DJIA managed to remain 0.08% in the black.  US yields/swap rates fell 1-3bps across the curve, pushing the 10-year note yield below 2.88%, and the US dollar finished marginally lower on the day (-0.09%) vs. major currencies.  In commodities, WTI crude futures tumbled 1.4% to $67.75/barrel after the EIA reported a larger than expected rise in gasoline inventories as the central Cushing, Oklahoma hub. 



Don’t Be Scared of Inversion

Today New York Fed President John Williams (voter) publicly acknowledged the recent strength in the US economy, referring to the current state of conditions as “as good as it gets”.  In a speech at the University of Buffalo School of Management, Williams provided an alternative perspective to that of his dovish colleague James Bullard (see yesterday’s market color) in stating that the current shape of the yield curve should not alter the Fed’s plans for tightening monetary policy.  “I don’t want to mechanically apply the math or the evidence from previous periods to this one,” Williams explained.  He supported the idea that the Fed’s trillions of dollar in bond holdings may ultimately hold long-term rates lower and if the FOMC were “to move interest rates up to the point where the yield curve was flat or inverted, that would not be something I find worrisome on its own.”   



Loving the Labor Market

Key economic data releases on the day centered around the US jobs market, beginning with the Labor Department’s weekly initial jobless claims, where the lowest reading in the past 49 years was recorded.  The number of Americans filing for unemployment for the first time fell to a seasonally adjusted 203,000 last week.  The four-week moving average of claims also fell to the lowest level since 1969, down 2,750 to 209,500, reflective of the continued tightening in the labor market.  Still, market pundits have maintained that these figures do not reflect the complete employment picture given the stubbornly lackluster wage increases.



Separately, the ADP national employment report displayed 163,000 new hires by private employers in the US during August.  While the pace missed expectations of 200,000, it can still be categorized as a strong level as we continue to observe the unemployment rate continuing to creep lower.  Often a leading indicator for the Labor Department’s more comprehensive employment report due out tomorrow, today’s ADP figure foreshadows steady gains in the nonfarm payroll data, where median forecasts point to a 194,000 nonfarm payroll addition (157k in prior month) and a 3.8% unemployment rate (which would match an 18-year low).   


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