Movement in Chinese trade discussions
Market Recap week ending 10/11/2019
In what was another volatile week for investors, major US market indices posted gains across the board. News early in the week that the administration would place an additional 28 Chinese companies on its “Entity List” and also impose visa bans on some Chinese officials due to human rights violations against a Muslim minority within China, tempered expectations on the trade negotiations that were set to start later in the week. However mid-week presidential tweets coupled with constructive statements from the Chinese that suggested a partial deal was in play helped the markets rebound. In the end, it appears that a partial agreement between the countries was struck, but very little details were provided. The deal was described as “Phase 1” and is said to have included Intellectual Property protection, increased Agriculture purchases, access to the Financial Services market, and an agreement concerning currency. Phase one did not include a fix for Chinese telecom equipment provider, Huawei. It does, however, appear that the deal removes the October 15thdeadline where tariffs on 250 billion of Chinese goods were set to go from 25% to 30%. Again, details surrounding “Phase one” were ambiguous and while encouraging left investors with a lot questions.
On the other side of the pond, negotiations between the UK and EU on Brexit appeared to be constructive and helped to boost optimism that a hard Brexit could be avoided. The sentiment helped push the UK market higher and put a strong bid into Sterling.
Preliminary University of Michigan Consumer sentiment for October surprised investors last week with a reading of 96. The data was much better than the consensus estimate of 89.9 and ticked higher than the September reading of 93.2. A component of the survey, Real Income Expectations, increased to a level not seen in two decades, which helped to reassure investors that the consumer still appears to be on sound footing.
For the week the S&P 500 gained 0.62%, the Dow increased by 0.91%, the NASDAQ advanced 0.93%, and the Russell 2000 tacked on 0.75%. Safe-haven assets were out of favor last week. US Treasuries sold off with the 2-year note yield increasing 22 basis points to close at 1.61%. Similarly, the 10-year bond yield increased by 23 basis points to close at 1.75%. Gold lost ~$25 for the week and closed at 1487.50 an Oz. Oil increased by 3.5% and closed at $54.59 a barrel. There were no changes to our models last week.
Darren Leavitt, CFA Portfolio Manager & Sr. Market Analyst