U.S. and World News
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.- The United Kingdom and the European Union have extended the deadline from October 18th to the middle of November for wrapping up Brexit terms, signaling to the market that negotiations have been tough. Britain’s exit from the European Union is set for March 29th, and the longer that negotiations continue, the greater the chance that no deal will be made.
Markets
- Stocks ended the week higher once again. The S&P 500 rose by 0.98% and closed at 2,901. The Dow Jones increased by 0.79% and closed at 25,963. Year to date, the S&P is up 9.85% and the Dow Jones is up 6.66%.
- Yields rose higher this week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.74% and 2.86%, respectively.
- The spot price of WTI Crude Oil continued its sharp rebound this week, gaining 1.73% and closing at $69.91 per barrel. Year to date, Oil prices are up 16.30%.
- The spot price of Gold lost 0.50% this week, and closed at $1,199.33 per ounce. Year to date, Gold prices are down 7.94%.
Economic Data
- Initial jobless claims rose by 3,000 to 213,000 this week. The four-week moving average of claims moved down by 2,000 to 212,000. Claims rose by 2,000 in Michigan, New York, and Pennsylvania, and fell by 2,000 in California. The pace of layoffs remains very low.
- Personal income rose by 0.3% in July month-over-month versus expectations of a 0.4% increase.
- Personal spending increased by 0.4% month-over-month in July, in-line with expectations.
- The core PCE price index ex-food and energy increased 0.16% month-over-month in July and the year-over-year pace rose 0.06% to 1.98%. These figures were in-line with expectations.
- Wholesale inventories rose 0.7% in July versus expectations of a 0.2% increase.
- The Conference Board index of consumer confidence increased to 133.4 versus expectations of 126.6. This is the highest level since the year 2000.
- Second-quarter Real GDP growth was revised up by 0.1% to 4.2% versus expectations of a -0.1% revision to 4.0%.
- Pending home sales fell by 0.7% in July, below expectations of a 0.3% increase. Sales declined in the South and the West, but increased in the Northeast and the Midwest.
Fact of the Week
- In a study of five of the largest U.S. Cities (NYC, Chicago, LA, Washington D.C, and Dallas), it was found that it is cheaper for the average American to take Uber for every trip than it is to own a car. Of the 5 cities, only in Dallas was it cheaper to own a car than to take an Uber. (Source: Kleiner Perkins)
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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.