Weekly market update

Stocks finished the last week slightly higher as gains came amid hopes of a more dovish FED ahead of the central bank’s meeting this week. But those gains arguably are already largely priced in, with much of the market not expecting a rate cut this week but apparently thinking policymakers will adjust their language to reflect a more accommodating stance.

The story of slowing global growth that Wall Street has been telling itself in recent months added a new chapter last week in the form of Chinese industrial production data.  The latest numbers show industrial production in the world’s second-largest economy rising just 5% on a yearly basis last month, marking the weakest pace of growth in 17 years.

The news comes as the trade war between China and the U.S. drags on and President Trump has threatened additional tariffs on Chinese goods. With the globe’s biggest economies locked in a protracted trade spat, many have feared that the trade issue, which has led to the disruption of billions of dollars of goods traveling around the planet, will crimp global economic growth.

On the economic front, last week’s inflation data was disappointing as both the headline and core CPI (ex. food & energy) rose just 0.1% MoM. Low levels of inflation are nothing new as the YoY core growth rate hasn’t climbed about 3% since 1993.

For investors, the focus will now turn to the FED and how they respond to falling inflation expectations versus the FED funds rate. Historically, when long-term inflation expectations converge with the FED funds rate, it has been a signal that monetary policy is too tight and rate cuts are required. This may give the FED the cover they need for a rate cut this week, but it is not expected.

We got a strong retail sales number last week and that may help the case against a rate cut, we’ll have to wait until Wednesday to see. But, whatever they do it surely has to be a fine balancing act due to mixed data on the economy and inflation.

This week we get the latest reading from regional Federal Reserve banks – New York and Philly. We will also get the latest reading on housing starts and existing home sales, but all eyes will be on the FED and their rate decision. We also brace for the newest tweet storm from President Trump and as we have become very aware, those tweets can move markets, so stay tuned and we’ll keep you posted.

Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
June 18, 2019

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