Daily Market Color September 14, 2018US-China Trade War Back in Spotlight Jeff Davenport Yields Continue to Rise Financial markets fluctuated throughout the day as uncertainty surrounding the trade war with China escalated, while factory and retail data portrayed further strength in the US economy. Major US equity indices finished near even for the session, as the S&P 500 (+0.03%) was able to squeeze out its fifth consecutive day of gains. Treasurys sold off for the third time this week, with yields/swaps rates finishing 2-4bps higher across the curve. The yield on the 10-year note is closed the trading session just under 3.00%, a level it has crossed over only a handful of times this year. The US dollar finished the week on a strong note, rising 0.47% against major currencies. In commodity markets, WTI crude futures settled 40 cents higher to $69.00/barrel as the trade war concerns pulled back the rally on news of potential increased sanctions on Iran. Trade War Threat Escalates Just as global markets were getting comfortable with the idea that the world’s two largest economies may be able to find common ground on trade negotiations, President Trump pulled out the rug. On Wednesday, it was reported that the US had sent an invitation to Chinese trade officials with the intention to plan another round of discussions and hopefully make progress on what has been a ping-pong battle of imposing tariffs on one another. However this afternoon it was leaked that Trump was in the process of directing aides to proceed with levying tariffs on another $200 billion worth of Chinese imports. Next week, financial markets will be paying close attention as to the official timing for the tariffs and reaction by the Chinese government. Immediate reaction from news included a slide in US stocks and boost to the dollar. Economic Data Remains Positive Data from the Federal Reserve this morning revealed a third consecutive month of robust factory data. Headline industrial production during August rose 0.4%, matching the prior month’s upwardly revised level. Compared to a year earlier, production was up 4.9%. Much of the increase was attributed to heightened growth in the utilities sectors, which jumped 1.2%. Overall, the report exemplifies the continued strength in domestic demand as international demand begins to curb. Sales at US retailers rose at a more modest pace than expected during the month of August. Overall retail sales climbed 0.1% last month (+0.4% expected), largely impacted by a sharp decline in auto sales (-0.8%). Excluding autos, sales were up 0.3%. On the positive side, retail sales during July were revised higher to +0.7% from +0.5%. The trend of spending at online retailers compared to in-store purchases continued, as sales at department stores declined 1% in August compared to a 0.7% rise at nonstore retailers.