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Aug 27 2018

8/27/18 Market Notes

Stocks appear set to continue were they left off on Friday, as major international bourses are all
rallying and premarket U.S. equity futures are pointing to a higher open. Mexican and U.S. trade
officials both cited meaningful progress in trade negotiations over the weekend, going as far as
indicating that a ‘major trade deal’ could be reached this week. Furthermore, the People’s Bank of
China announced over the weekend that it would change how it manages the Yuan’s valuation, in
essence indicating that it does not desire to use the currency as a tool to counter the impact of tariffs.

 
While Fed Chairman Jerome Powell remained upbeat in his view of the U.S. economy, some of his
Fed colleagues struck a slightly more cautious tone while at the Jackson Hole Summit last week. Most
notably St. Louis Fed President James Bullard stated in a CNBC interview that he would not raise
rates further at this time, referencing data and comments from Atlanta Federal Reserve President
Raphael Bostic. Mr. Bostic continues to raise concerns over the impact of tariffs and the national
budget deficit, which is almost certain to exceed $1 trillion next year. Mr. Bostic and Mr. Bullard both
point out that the rising deficit is a material contributing factor to our nation’s trade deficit, and that
tariffs will impact consumers to a greater extent than many believe. In a Financial Times interview,
Mr. Bostic said “we are at an inflection point (of the U.S. economy) almost in terms of having this
trade policy really start to affect what consumers see and experience in stores.”

 
Oil prices remain elevated as new sanctions on Iran and trade spats continue to impact the supply
chain. The U.S. dollar is reversing some of its strong gains from last week, as U.S. Treasury yields are
mostly lower after Mr. Powell’s Jackson Hole speech. Commodities in general remain weak, as
Copper sits near its lowest point since late 2016, a potential indication that global demand isn’t as
robust as the headline data suggests.

 
Trade, currencies and emerging market debt crisis are all at the forefront of investor’s minds this
week, making Wednesday’s second look at Q2 GDP data potentially more critical. Consensus
estimates are that the U.S. economy grew by 4.1% in the second quarter, which could keep it on track
to grow by 3% or more for the year.

 

Sincerely,

The GGFS Investment Committee