Not even a strong labor report could save stocks from tumbling last week, likely in response to President Trump’s tweet that he intended to raise tariffs on an additional $300 billion worth of Chinese imports beginning next month. Trading volume spiked last week as did volatility, with the CBOE Volatility Index® hitting its highest level since May. Rising trade tensions between the economic giants sent global stocks reeling while bond prices soared, sending yields downward.
LAST WEEK’S ECONOMIC HEADLINES
- For the first time since 2008, the Federal Open Market Committee voted to lower interest rates, lowering the Federal Funds rate 25 basis points to 2.00%-2.25%. The Committee vote was not unanimous as 2 of the 10 members voted against a rate reduction. In any case, after noting that economic activity has been rising at a moderate rate, the Committee noted that growth of business fixed investment has been soft and inflation is running below the Committee’s 2.00% target. Also of note, the Committee specifically referenced for the first time “global developments for the economic outlook” as a reason for lowering the target range for the federal funds rate.
- Employment rose by 164,000 jobs in July, and the unemployment rate remained at 3.7%. Over the past 12 months ended in July, average hourly earnings have increased by 3.2%.
- The trade deficit was $55.2 billion in June, down $0.2 billion from May’s revised deficit. In June, goods trade deficits were noted with China ($30.2 billion), the European Union ($15.9 billion), Mexico ($9.2 billion), and Japan ($6.2 billion). Trade surpluses were with South and Central America ($4.8 billion), Hong Kong ($2.3 billion), Brazil ($1.3 billion), and the United Kingdom ($0.1 billion).
- Not unexpectedly, June saw prices for consumer products and services remain stable while consumer spending remained solid.
- According to Markit’s survey, manufacturing firms continued to see a slowdown in July. The purchasing managers’ index last month fell to its lowest level since September 2009 with exports contracting for the second time in the last three months. Survey respondents noted softer demand for goods and muted business growth.
- The ISM® purchasing managers’ index also fell in July from a month earlier. Production, employment, and prices fell last month, but new orders, supplier deliveries, and inventories increased, which is a good start for August.
EYE ON THE WEEK AHEAD
Following last week’s busy schedule of economic reports, this week does not include a lot of market-moving information. The Job Openings and Labor Turnover Survey (JOLTS) is expected to reveal similar job openings in June as existed in May. Another report of note, the Producer Price Index, saw producer prices increase slightly in June. It would not be surprising if prices showed no change in July.