What started as a week of gloom and doom in the markets, ended with a positive note from the US consumer and a cooling in rhetoric on the US-China trade war. This was supposed to be a quiet week, when central bankers are on holiday and economic data on the light side. But from the way the last exchanges occured, the US-China trade war is far from over. China is growing more vocal and its tack is changing as Ashraf pointed out here. More on this from is time last week, Ashraf issued a Premium long in the DOW30 when it was up 300 pts. The trade was closed with a 700-pt gain. No longs will be issued today despite the index being up 300 pts. There are two existing trades for now. We'll return next week with the FOMC minutes of the last meeting and the Fed's Jackson Hole conference (more details here). Meanwhile, GBP is the strongest currency of the day and the week, in a week that was dominated by swings in indices. More on the market dashboard below.
Positive Retail Data vs Market Turmoil
The data highlight of the week was the 1.0% rise in US retail sales (control group) compared to +0.4% expected. That makes the first seven months of 2019 the strongest seven-month period for the series since at least 1992. The strength in retail was underscored by by quarterly results and commentary from Wal-Mart (NYSE:WMT). That data is in wild contrast to financial market moves this month. Treasury yields fell to fresh lows with 10-year notes breaking 1.50% and 30-year bonds falling below 2%. Both have fallen 50 basis points since the start of the month – a sign of extreme stress.
How do we reconcile robust consumer data with violent market moves? For one, the economic data is backward looking while the market is looking ahead. This is especially the case for a late-cycle economy, when slowdown in manufacturing production, factory capacity and supply orders preceded changes in labour markets. It's also looking abroad to the eurozone, which is increasingly worrisome. On Thursday, the ECB's Rehn told the WSJ that at this point the central bank needs to beat expectations. The market is now pricing a better-than-even chance of a 20 bps cut (rather than 10 bps).
Market Dashboard
Here are some notable market notes sent to me by Ashraf. Despite today's gains:
US indices posted the 3rd straight weekly decline, the longest since May.
United States 10-Year fell 11% on the week, the biggest decline since summer 2012.
CBOE Volatility Index remains well over its 200-DMA of 17.00 and all 3 meain weekly MAs.
GBP/USD has its strongest week in 7 weeks.