U.S. stock markets and the 10-year U.S. Treasury rate fell sharply on Monday (S&P 500 Index down 3%, 10-year U.S. Treasury rate 14bps lower) after the Chinese yuan weakened to above 7 yuan/dollar, greatly increasing fears of an all-out trade and, perhaps, currency war between the U.S. and China.
Following somewhat stronger-than-expected U.S. economic and inflation reports (including the previous Friday’s GDP report), the FOMC voted on Wednesday to reduce the Fed Funds target rate 25bp to between 2.00% – 2.25%.
Key points
Commentary
Friday’s stronger-than-expected first estimate of Q2 GDP helped reduce concerns of a weaker U.S. economy brought about by a much-weaker-than-expected existing home sales number and a slew of other slightly-less-than-expected economic numbers released earlier in the week. Strong Indications the ECB is ready and willing to reduce rates and restart its bond buying program helped increased expectations of stronger EU and global economic growth as did reports U.S. and China trade talks would resume this coming week. At week’s end the U.S. dollar strengthened 0.9%, 10-year U.S. Treasury rates increased 2bp to 2.07% and the S&P 500 index increased 1.7%.
Up 1.8% through Tuesday, oil prices moved higher spurred by concerns over Iran’s seizure of a British oil tanker the previous week and expectations of a large drawdown in U.S. oil inventories. Wednesday’s EIA inventory report showing a large drawdown (as expected) was dismissed as a one-time “Hurricane Barry” effect with concerns of reduced oil demand due to weaker global growth prevailing and pushing oil prices off their highs of the week.
Base metal prices moved lower last week as a result of a stronger U.S. dollar and continued concerns of weaker Chinese and global growth. Aluminum prices down 1.4% through Thursday fell another 1.2% on Friday after the world’s largest alumina refinery, Norsk Hydro, lowered its demand growth forecasts for aluminum for a second time this year citing weaker global growth and U.S. – China trade frictions. Nickel prices gave up some of their recent large gains after analysts warned prices had moved too high.
Gold prices moved lower as expectations of the number and size of U.S. rate decreases were slightly lowered on the back of a stronger-than-expected U.S. GDP report on Friday. Silver and platinum prices increased supported by inflows into ETPs.
Grain prices moved lower last week mainly as a result of improved weather conditions and increased expectations of improved harvest yields. Corn prices also suffered from lower-than-expected export numbers and reduced demand for ethanol. Soybean prices increased slightly on Friday after reports U.S.- China trade talks would resume this coming week.
Coming up this week
Despite much-better-than-expected retail sales numbers on Monday, concerns of weak growth in the EU and China helped pushed commodity and U.S. Stock markets lower last week.
Increased optimism on Monday resulting from a reported U.S.-China trade truce following the G-20 conference followed by a stronger-than-expected employment report on Friday moved U.S. stock markets higher, strengthened the U.S. dollar and increased the 10-year U.S. Treasury rate.
Increased optimism on Monday resulting from a reported U.S.-China trade truce following the G-20 conference followed by a stronger-than-expected employment report on Friday moved U.S. stock markets higher, strengthened the U.S. dollar and increased the 10-year U.S. Treasury rate.