China tariffs, Brexit: Wealth Economic Update August 24, 2019

U.S. and World News

  • Early this morning, China announced its plan to impose retaliatory tariffs on $75 billion of American goods including soybeans, automobiles, and oil as a response to the Trump administrations planned additional tariffs on Chinese imports. The new retaliatory tariffs are scheduled to take effect on September 1st and December 15th, the same schedule as the United States 10% tariff on $300 billion of Chinese goods goes into effect. This new set of retaliatory tariffs targets U.S. farms and factories, bringing the total tariff on U.S. automobile exports to 50%. The announcement comes as the G7 summit takes place in France and the Federal Reserve meeting in Jackson Hole Wyoming, two critical meetings where the trade war with China will be discussed.
  • British Prime Minister Boris Johnson traveled to Germany and France this week to continue to push his message that Brexit will not be stopped, with or without negotiations. Boris Johnson also wrote a letter to European Council President Donald Tusk stating the the Irish backstop plan is “unviable” and must be removed, hinting that if it were, it could lead to a Brexit deal being approved by parliament before the Brexit deadline. Brexiteers believe that the Irish backstop poses a threat to the independence of the U.K. from the European Union post-Brexit as the U.K. would be restricted from making trade deals with other countries. The European Union has stated that the Irish backstop is necessary for the free movement of goods, services, and people.


Markets

  • Markets plummeted this week as the trade war with China has ramped up again. The S&P 500 fell 1.42% and closed at 2,847. The Dow Jones declined by 0.98% and closed at 25,629. Year-to-date, the S&P is up 15.07% and the Dow Jones is up 11.64%.
  • Yields fell slightly this week. The 5 year and 10 year U.S. Treasury Notes are yielding 1.41% and 1.53%, respectively.
  • The spot price of WTI Crude fell this week. Prices declined 1.72% and closed at $53.87 per barrel. Year to date, Oil prices are up 18.63%.
  • The spot price of Gold rose 0.82% and closed at $1,525.91 per ounce. Year to date, Gold prices are up 18.98%.

Economic Data

  • Initial jobless claims fell by 12,000 to 209,000. The four week moving average of claims rose by 1,000 to 215,000. Claims fell by 6,000 in California.
  • Existing home sales rose by 2.5% to a seasonally adjusted annualized rate of 5.42 million, in-line with expectations
  • Sales of new single-family homes fell by 12.8% to a seasonally adjusted annualized rate of 635k units versus expectations of 647k units

Fact of the Week

  • The bond market (as measured by the Bloomberg Barclays Aggregate bond index) has had a negative total return just 3 of the last 40 years. Those years were 1994, 1999, 2013. The year to date total return of the Bloomberg Barclays Aggregate ETF (AGG) as of close 8/22 is 8.14%. (Source: Bloomberg)

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
Mike Cava, CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Jacqueline Runnberg, CFP® – (630) 966-2462 jrunnberg@oldsecond.com

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