Uncertainty Over Trade and Brexit

21 Oct

Following a pullback on Friday, the Dow Jones 30 Industrials were unchanged for the week but other indexes posted modest gains.  It became apparent that the phase 1 trade deal with China needs more work before it is finalized in the weeks or months ahead.  British Prime Minister, Boris Johnson and the EU have reached another Brexit deal but it is unknown if Parliament will approve it before the October 31st deadline.  The UAW and General Motors have reached a tentative agreement, however workers will remain on strike until a ratification vote is completed.  Q3 earnings started coming out this week and while lower than last quarter were generally better than expected.

Crude oil prices fell to $53.70 a barrel, gold rose to $1493.40 and ounce.  The 10-year treasury yield rose to 1.753% and the dollar fell against a basket of currencies.

In economic numbers this week:

  • China reported
    • From a year earlier, exports to the U.S. fell almost 22% in September.  Overall exports fell 3.2%.  China’s overall imports fell 8.5% year over year and imports from the U.S. fell 15.7%.
    • Consumer prices have risen 3% from a year earlier.  The increase was largely driven by a 69% increase in pork prices due to African swine fever.
    • China reported 6% annual growth rate in the 3rd quarter, the slowest since the first quarter of 1992.
  • The Commerce Department reported
    • Retail sales fell 0.3% in September.  Excluding autos retail sales were down 0.1%.
    • Housing starts fell 9.4% in September, coming off a 12-year high.  The decline was due to the volatile multi-family housing while single family home starts rose in September.  From a year earlier housing starts have risen 1.6%
    • Building permits, a sign of future housing starts, also coming off of a 12-year high, fell 2.7%.   From a year earlier permits have risen 7.7%.
  • The Federal Reserve reported that industrial production fell 0.4% in September and was down 0.1% from a year earlier.  This follows an upwardly revised increase of 0.8% in August.  Manufacturing fell 0.5% in September as the General Motors strike weighed on the economy causing output of vehicles and parts to drop 4.2%.
  • The Labor Department reported first time claims for unemployment rose 4,000 to a seasonally adjusted 214,000.  The four week moving average of claims rose 1,000 to 214,750.
  • The EIA weekly oil report is here wpsrsummary (8).  Also, the EIA reported in the past week:
    • Field production of crude oil was unchanged at 12.6MM barrels per day.
    • Natural gas storage increased by 104BN cubic feet and is at the five year average at this time of year.
  • Factset reported with 15% of companies reporting Q3earnings, the blended earnings decline was 4.7%.
  • Baker Hughes reported the number of active oil rigs rose 1 to 713 and the number of active gas rigs fell 6 to 137.

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Best Regards,

Loren C. Rex, CFP®, AIF®, MA                                                       Erik A Smith

President                                                                                               Managing Partner

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