Key takeaways
- Trade friction between U.S. and China returns
- Fed rate cut likely this month
- Solid start for Q3 earnings season
On this week’s edition of Market Week in Review, Director and Senior Portfolio Manager Alex Cousley discussed the recent flare-up in trade tensions between the U.S. and China. He also reviewed U.S. economic and earnings data as well as the latest credit numbers from China.
Trade spat between U.S., China resurfaces
Cousley noted China-U.S. trade tensions picked up late last week after China announced export restrictions on rare earth minerals. In response, U.S. President Donald Trump threatened a 100% tariff on Chinese imports. Markets were initially rattled by the development but have calmed in recent days as both countries have signaled a willingness to talk, Cousley said.
“President Trump and Chinese President Xi Jinping are likely to discuss this at next month’s APEC summit in South Korea. We expect cooler heads to prevail, because neither side probably wants to see 100% tariff rates again,” he remarked. That said, Cousley thinks volatility could remain elevated as the meeting approaches.
Is a Fed rate cut likely this month?
With the U.S. government shutdown entering its third week, Cousley said no official economic data has been released. However, there are other indicators that can be used to gauge the health of the economy, including the NFIB’s (National Federation of Independent Business) survey of small businesses. The most recent survey pointed to a drop in small-business optimism, he noted, while PMI (purchasing managers’ index) surveys of business activity in Philadelphia and New York were mixed.
On the labor market front, Cousley explained that with data unavailable at the federal level, one way to get an estimate of the current backdrop is to add up unemployment filings from all 50 states. Doing this shows U.S. jobless claims probably declined in the past week, he said. “This likely drop in initial unemployment filings is an encouraging sign and points to a pretty resilient labor market,” Cousley said.
However, the job market is still showing some signs of cooling, which makes a U.S. Federal Reserve (Fed) rate cut later this month likely, he added. Beyond October, the path of monetary policy is much more uncertain, Cousley stressed.
Q3 earnings season starts strong
Third-quarter earnings season in the U.S. kicked off on a solid note this week, Cousley said. “The earnings from big banks were strong and show consumers are still in a decent spot,” he remarked.
The story was a little different for regional banks, however, with softer-than-expected numbers. This led to a selloff in small-cap stocks, Cousley said. “It’s clear there are some pockets of stress in regional banks,” he noted.
China’s credit market remains weak
Cousley finished with a look at key economic data from China. He said the latest trade numbers were a bit better than expected, while the credit numbers remained weak.
“Loan demand in China is still quite soft, as there hasn’t been a resurgence in either consumer or business confidence,” he concluded.