Treasury prices are little changed this morning amid a better tone in risk markets. S&P 500 futures are currently up 13 points on reports that a Chinese delegation is flying to Washington to resume low-level trade negotiations, which is contributing to a weaker U.S. dollar for the first time in more than a week. Trade tensions are receiving the bulk of the blame for recent dollar strength and subsequent volatility in emerging markets, but current Fed policy may be the elephant in the room. The rally in the dollar since early April has corresponded with the acceleration of Fed balance sheet reduction (and continued Fed rate hikes). Less dollar supply from Fed tightening (including BS reduction) increases commodity costs, which sparks inflation risks in emerging markets even if growth is stagnant. This is not a new phenomenon, but the game is different this time around given the unwind of a massive asset purchase program (QE).

As we have noted several times in recent months, it would be unreasonable to believe that QE could drive global stock/bond prices higher for several years while purchases were being made but not have any inverse effect on the unwind.  Any tightening cycle is a difficult balancing act for a central bank, evidenced by the fact that the Fed has only achieved one soft landing (no recession) in the modern era. Add the unwind of an unprecedented bond purchase program to what was already a difficult process, and you end up where we are today. I’m not saying it’s not doable, but I certainly don’t envy their position. The positive is that U.S. growth fundamentals remain positive, but can the U.S. economy withstand rising stress in the global economy?

Jason Haley
Managing Director, Investment Management Group

Date TimeEventSurveyActualPrior
08/14/2018NFIB Small Business Optimism106.8107.9107.2
08/14/2018Import Price Index MoM0.00%0.00%-0.40%
08/14/2018Import Price Index ex Petroleum MoM0.10%-0.10%-0.30%
08/14/2018Import Price Index YoY4.50%4.80%4.30%
08/14/2018Export Price Index MoM0.20%-0.50%0.30%
08/14/2018Export Price Index YoY4.30%5.30%
08/15/2018MBA Mortgage Applications-2.00%-3.00%
08/15/2018Empire Manufacturing2025.622.6
08/15/2018Nonfarm Productivity2.40%2.90%0.40%
08/15/2018Unit Labor Costs0.00%-0.90%2.90%
08/15/2018Retail Sales Advance MoM0.10%0.50%0.50%
08/15/2018Retail Sales Ex Auto MoM0.30%0.60%0.40%
08/15/2018Retail Sales Ex Auto and Gas0.40%0.60%0.30%
08/15/2018Retail Sales Control Group0.40%0.50%0.00%
08/15/2018Industrial Production MoM0.30%0.10%0.60%
08/15/2018Capacity Utilization78.20%78.10%78.00%
08/15/2018Manufacturing (SIC) Production0.30%0.30%0.80%
08/15/2018Business Inventories0.10%0.10%0.40%
08/15/2018NAHB Housing Market Index676768
08/15/2018Total Net TIC Flows$114.5b$69.9b
08/15/2018Net Long-term TIC Flows-$36.5b$45.6b
08/16/2018Initial Jobless Claims215k212k213k
08/16/2018Continuing Claims1738k1721k1755k
08/16/2018Philadelphia Fed Business Outlook2211.925.7
08/16/2018Housing Starts1264k1168k1173k
08/16/2018Housing Starts MoM7.40%0.90%-12.30%
08/16/2018Building Permits1310k1311k1273k
08/16/2018Building Permits MoM1.40%1.50%-2.20%
08/16/2018Bloomberg Economic Expectations53.5
08/16/2018Bloomberg Consumer Comfort59.3
08/16/2018Mortgage Delinquencies4.63%
08/16/2018MBA Mortgage Foreclosures1.16%
08/17/2018Leading Index0.40%0.50%
08/17/2018U. of Mich. Sentiment9897.9
08/17/2018U. of Mich. Current Conditions114.4
08/17/2018U. of Mich. Expectations87.3
08/17/2018U. of Mich. 1 Yr Inflation2.90%
08/17/2018U. of Mich. 5-10 Yr Inflation2.40%