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Weekly Market Review | Oct. 13

15 October 2019

Clint McGarvin, CFA® | Portfolio Manager

Week Ending October 13, 2019

As last week opened, inflation was the biggest news item of the week; however, as the week came to an end, the agreement on a partial trade deal between the U.S. and China dominated headlines. The inflation data suggests the Fed has free reign to cut rates again this year while the trade deal, at least temporarily, reduced investors’ fears and sent equity markets higher Friday. The news on the trade war feels like deja-vu, but the inflation data is more supportive of the equity markets.

The U.S.

Friday, the Trump Administration announced a “very substantial phase one deal” with China. The “deal” did not include a reduction or elimination of current tariffs on either side, but it did include a delay on all announced tariffs that have yet to take effect. As of late Sunday, China had not yet signed the agreement, raising fears that the agreement was nothing more than empty rhetoric from both sides.[i] The news of a partial trade deal contributed to the approximate 0.7% rise in U.S. large-caps and nearly 0.8% rise in U.S. small-caps.

The inflation data, both the Producer Price Index (PPI) and the Consumer Price Index (CPI), appears unambiguously supportive of equity markets. The PPI for final demand declined by 0.3% in September. The decline in September brought the year-over-year change in the PPI down from 1.8% in August to 1.4% last month.[ii] The CPI was unchanged in September, while the core CPI, which excludes food and energy, increased 0.1%. The year-over-year change in the CPI also remained flat at 1.7%. The recent decline in the PPI suggests that the CPI will likely decline in the near-term.[iii] The PPI frequently, but not always, leads the CPI, so the recent steep decline in the PPI indicates we should expect the CPI to decline. The data in both the PPI and CPI agree with the inflation readings in the two indices from the Institute for Supply Management and IHS Markit, which indicated input and output prices were flat to down, and some firms were reducing prices because of low demand and excess capacity. Higher oil prices in September resulted in import prices rising 0.2%, but excluding oil, import prices declined 0.1% in the month.[iv] All of the inflation data out last week shows that inflation remains on the low side, and the outlook is for continued muted change in prices; furthermore, the data gives the Fed room for additional cuts.


The trade war continued to be a driver of international equity markets, with Chinese equities rising late in the week following a report that the Trump Administration may be announcing concessions on Huawei as well as increased optimism that the two sides were negotiating toward a trade deal, which was announced Friday.[v] The stronger economic data out of the emerging markets over the last two months has helped equity returns in emerging equities, which rose about 1.5% last week. Developed equities also posted strong returns, rising about 2.3% on the week, and similar to emerging markets developed equities were driven by news regarding trade negotiations.

Fixed Income

Treasury yields jumped last week, with the 10-year rising 20 basis points to 1.76% on Friday while the 3-month declined 2 basis points, while the 2-year yield increased 24 basis points. The jump in yields sent bond prices and returns down with the long-term Treasury index was off about 3.6% while high-quality bonds declined about 1.0%.[vi]


Inflation data supports the claims that the economy is slowing, but the partial trade agreement could act to ease the economic slowdown. However, we have been told that an agreement was near, that negotiations are making significant progress toward a deal, only to see an escalation in tensions between the U.S. and China. All of this suggests that the Fed is likely to cut rates at least once more before the end of the year. Additionally, the Fed announced a plan to begin expanding its balance sheet once again due to short periods of illiquidity in some bank lending markets. This expansion may inject more juice into the economy to ward off the slowdown we are now experiencing.

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[i] CNBC (2019), China Wants Another Round Of Talks Before Signing Phase One of the Trade Deal, Source Says. Retrieved from
[ii] U.S. Department of Labor, Bureau of Labor Statistics (2019), Producer Price Indexes – September 2019. Retrieved from
[iii] U.S. Department of Labor, Bureau of Labor Statistics (2019), U.S. Department of Labor, Bureau of Labor Statistics (2019). Retrieved from
[iv] Bureau of Labor Statistics (2019), U.S. Import and Export Price Indexes summary. Retrieved from
[v] CNBC (2019), Major markets in Asia rebound after report Trump may announce Huawei concessions. Retrieved from
[vi] U.S. Department of the Treasury. Daily Treasury Yield Curve Rates. Retrieved from

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