U.S. and World News
- After trade discussions broke down three weeks ago, the Trump administration has invited Chinese officials for another round of negotiations. President Trump wrote in a tweet on Thursday that “We are under no pressure to make a deal with China, they are under pressure to make a deal with us”. Meanwhile, an editorial in the China Daily read “The Trump administration should not be mistaken that China will surrender to the U.S demands.” This new round of trade negotiations comes before additional tariffs of 10-25% on $200 billion of Chinese imports are being prepared by the United States. China is expected to retaliate in a similar fashion to these tariffs.
Hurricane Florence, a Category 1 hurricane, made landfall this morning on the North Carolina coast bringing sustained winds of 90 miles per hour and a life-threatening storm surge. The slow moving storm is expected hang over the Carolinas this weekend and drop catastrophic amounts of rain causing a lot of flooding. The power was knocked out in nearly 500,000 homes and hundreds were rescued this morning as the storm made landfall.
Markets
- Stocks rebounded this week. The S&P 500 rose 1.21% and closed at 2,905. The Dow Jones rose by 0.94% and closed at 26,155. Year to date, the S&P is up 10.09% and the Dow Jones is up 7.50%.
- Yields rose higher again this week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.90% and 3.00%, respectively.
- The spot price of WTI Crude Oil increased by 1.83% this week to close at $68.99 per barrel. Year to date, Oil prices are up 14.77%.
- The spot price of Gold dropped 0.33% this week, and closed at $1,192.99 per ounce. Year to date, Gold prices are down 8.43%.
Economic Data
- Initial jobless claims fell by 1,000 to 204,000 this week. The four-week moving average of claims moved down by 2,000 to 208,000. Claims rose by 5,000 in California and 2,000 in Michigan. This is the lowest level of jobless claims since 1969.
- The consumer price index (CPI) rose 0.22% in August versus expectations for a 0.3% increase.
- Core CPI ex-food and energy rose 0.08% in August versus expectations of a 0.2% increase. The soft reading was led by the apparel category. The year-over-year rate declined to 2.2%.
- Wholesale inventories rose 0.6% in July versus expectations for a 0.7% increase.
- The producer price index (PPI) declined by 0.1% versus expectations for a 0.2% increase.
- Core PPI ex-food and energy rose 0.1% versus an increase of 0.2% expected.
- Retail sales rose by 0.1% in August versus expectations for a 0.4% increase. The weaker sales growth was a result of lower auto sales.
- Core retail sales rose 0.1% in August versus an increase of 0.4% expected.
- Import prices fell 0.6% in August versus expectations for a 0.2% decline
- Industrial production rose by 0.4% in August versus expectations of a 0.3% increase.
- The University of Michigan’s index of consumer sentiment September preliminary reading came in at 100.8 versus expectations of 96.6.
Fact of the Week
- In a “private letter ruling” issued on August 20th, the IRS approved the use of a program to help aid employees that have student debt. The program would allow employees that make student loan payments to still receive an employer contribution in their 401(k) as if the loan payment was a pre-tax 401(k) contribution. (Source: IRS)
Please contact a member of the Wealth Management Department if you have any questions about this information.
Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
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On Wednesday, Western Japan was hit with the most powerful typhoon that the country has seen in 25 years. Typhoon Jebi hit the city of Osaka with sustained winds of 100 miles per hour killing 11 people, injuring 470, and leaving over a million homes without power. Kansai Airport, a major airport for the tourist cities of Osaka, Kyoto, and Kobe still remains closed after vicious waves sent a large tanker into a bridge connecting the airport to the mainland. It is not yet known when the damaged and flooded airport will be reopened, raising concerns about the impact on tourism and the economy. On Thursday, Northern Japan was hit with a strong earthquake, closing another major airport. 22 were killed, 38 were missing, and roughly 3 million homes were without power after the earthquake.
The United States and Mexico have struck a preliminary deal on Monday to replace NAFTA. The deal would remain in force for 16 years, with an evaluation every six years, and is expected to strengthen manufacturing in the United States. The deal includes an obligation by auto manufacturers to manufacture at least 75% of an automobile’s value in the United States, an increase from 62.5%. Also included, was a stipulation that 40-45% of auto components be manufactured by employees earning at least $16 an hour. Negotiations are still ongoing between the United States and Canada after a deal was expected by today, however, the two sides are having trouble coming together on Canada’s dairy market, among other things.
On Tuesday, Donald Trump’s former campaign manager Paul Manafort was found guilty on eight financial related crimes. Five of the crimes were for tax fraud, two for bank fraud, and one for failing to disclose a foreign bank account. As a result, Paul Manafort faces years in prison. President Trump’s former attorney Michael Cohen plead guilty on eight counts of crimes similar to Manaforts and also admitted to paying off an adult film actress and a former Playboy model so that they would not spread the story of their alleged affairs with Trump.
Crushing hopes of a potential rate hike and restrictive monetary policy action by Turkey to reverse the decline of the Turkish lira, President Erdogan said that he will not raise rates. Erdogan claimed that the lira’s decline was a result of foreign affairs and has nothing to do with Turkey’s economy. Turkey has imposed retaliatory tariffs on a variety of U.S. goods including tariffs on passenger cars that will rise by 120%.
California’s largest-ever wildfire has grown to the size of Los Angeles as dry weather, high winds, and location have made it very difficult to contain. President Trump has declared a “major disaster” in California, ordering federal funding to assist in containing the fire. The fire that currently spans over 470 square miles has burned through 283,800 acres is not expected to be fully contained by firefighters until September.
The United States has proposed an increase on the tariff rate to 25% from 10% on the $200 billion of Chinese goods after the two countries made no progress with trade negotiations this week. The White House stated that the tariffs are a response to China’s unfair trade policies. U.S. Trade Representative Robert Lighthizer stated “The increase in the possible tariff rate is intended to provide the administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets and prosperity for all of our citizens”. This morning, China threatened to impose additional tariffs on $60 billion of U.S. products that would range between 5% and 25% and would hit 5,027 products if the United States proceeded with its proposal.
The United States and the European Union have agreed to work towards “zero tariffs, zero non-tariff barriers and zero subsidies for the non-auto industrial goods.” Additionally, the European Union will import more soybeans and liquefied natural gas from the United States. Earlier in June, a 25% tariff on steel and a 10% tariff on aluminum imported from the European Union was put in place by the United States, and soon after, the European Union imposed retaliatory tariffs on the United States. The planned 20% tariff on cars imported from Europe was put on hold this week as the two sides work towards zero tariffs.
The price of WTI Crude oil fell back below $70/barrel this week after Saudi Arabia has begun supplying at least two Asian countries with additional cargoes. Meanwhile, the Trump administration is attempting to lower gas prices before the November elections and is considering using its Strategic Petroleum Reserve. The state of Texas is on its way to becoming the world’s number 3 oil producer behind Russia and Saudi Arabia as the cost of drilling has declined dramatically. Approximately 5.6 million barrels per day is expected to be produced from the Permian Basin and Eagle Ford oilfields alone by 2019.