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Aug 28 2018

8/28/18 Market Notes

Word of a trade deal between the United States and Mexico propelled stocks higher, as the NASDAQ crossed the 8,000 level for the first time in history, the Dow Jones Industrial Average gained 1% and the S&P 500 closed at a record high. The Utilities and Real Estate sectors failed to participate in the rally, ending lower for the day, while Material and Financial shares gained the most for the day. This morning (Tuesday) equity futures are pointing to a mixed to slightly higher open as market participants wait for details of the announced trade agreement, which is said to be valid for 16 years.

On the economic front, the Chicago National Activity Index registered much lower than forecast, rising 0.13% in July, although it is important to note that this index can be volatile and irregular. Today’s Consumer Confidence, Case Shiller Home Price Index and Advanced Trade in Goods reports will provide a better picture of the state of the economy. European and Asian bourses are mostly higher overnight, as the positive U.S. market momentum is driving sentiment there.

The newly announced trade deal with Mexico is having little impact on Treasury yields or the U.S. dollar, both of which remain steady. Oil prices, however, are continuing their upward climb with WTI being within striking distance of $70 per barrel and Brent Crude trading above $76 per barrel. Economists are expressing some concern that the higher oil prices coupled with rising prices due to tariffs could have a significant slow-down effect on the U.S. economy later this year.

On the international front, the announced trade deal between the U.S. and Mexico is putting significant pressure on China and Europe, as it demonstrates that major trade counterparties are prepared to ‘go it alone’ to strike a deal. This is particularly problematic for Europe, which is at the cusp of a new crisis as a result of the Italian sovereign debt crisis and the Turkish debt and currency crisis.

Sincerely,
The GGFS Investment Committee