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For the third consecutive month consumer prices, as measured by the Consumer Price Index, remained unchanged in January.
December was not a good month at the retail level, as sales suffered their largest drop in nine years. Evidencing signs that economic growth slowed during the last quarter of 2018, total sales fell 1.2% in December, following a downwardly revised 0.1% increase in November. The good news is that total sales for 2018 were up 5.0%.
Prices received by domestic producers of goods and services, as measured by the Producer Price Index, fell 0.1% in January after declining 0.1% (revised) in December. Goods plummeted 0.8% for the month, while services actually increased 0.3% in January. Overall, producer prices advanced 2.0% for the 12 months ended in January.
Inflationary indicators has been soft so far this year and import and export prices are no exception. In January, United States import prices fell 0.5% and export prices decreased 0.6% for the second consecutive month.
Industrial production decreased 0.6% in January after rising 0.1% in December.
For the week ended February 9, there were 239,000 new claims for unemployment insurance, an increase of 4,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended February 2. The advance number of those receiving unemployment insurance benefits during the week ended February 2 was 1,773,000, an increase of 37,000 from the prior week’s level.
DJIA: 25,883.25, up 3.09%
Nasdaq: 7,472.41, up 2.39%
S&P 500: 2,775.60, up 2.50%
Russell 2000: 1,569.25, up 4.17%
Global Dow: 2,981.11 up 2.07%
Fed. Funds: 2.25% -2.50%, unchanged
10-year Treasuries: 2.66%, up 3 bps
The major U.S. equity indexes posted gains for the eighth consecutive week, as optimism that the U.S. and China would forge a trade deal before the U.S. raises tariffs offset weak December retail sales data. Stocks in the energy and industrials sectors within the S&P 500 Index generated the strongest returns, while utilities and financials were the laggards. Traders noted that the S&P 500 Index held above its 200-day moving average, an important technical support level for some market participants.
Crude oil prices increased nearly 5% for the week, supporting energy-related stocks. West Texas Intermediate crude, the U.S. benchmark, climbed above the $55-per-barrel mark on Friday. OPEC and Russia have voluntarily cut their oil production, reducing supply and supporting prices. U.S. sanctions on Venezuelan crude exports, designed to pressure the government of Nicolas Maduro, are further pressuring global oil supply.
Optimism that either the U.S. and China would reach a trade agreement before the March 1 deadline or that the U.S. would extend the deadline buoyed markets for most of the week (see below). On Tuesday, President Donald Trump said that he is open to extending the deadline if the two nations are nearing a deal by the beginning of March. However, National Economic Council Director Larry Kudlow said that no decision has been made to extend the deadline. U.S. government officials were in China during the week to take part in negotiations toward an agreement that would head off an increase in U.S. tariffs on $200 billion of Chinese goods to 25% from the current 10%. According to a Reuters report, China offered to boost its purchases of U.S. semiconductors in exchange for lower U.S. tariffs.
The 10-year U.S. Treasury yield increased modestly over the week despite a sharp decrease on Thursday following the release of the unexpected drop in December retail sales. (Bond prices and yields move in opposite directions.)
Corporate bond issuers brought large new deals to market, likely trying to take advantage of the decrease in market interest rates since late 2018.
The pan-European STOXX Europe 600 Index rose about 3%, buoyed by fresh signs of progress in U.S.-China trade negotiations. France’s CAC 40, Germany’s DAX, and the UK’s FTSE also advanced. Gains came despite more signs of slowing in the eurozone economy and the ongoing impasse over Brexit.
The euro was slightly lower against the U.S. dollar as fresh data this week showed slowing throughout the eurozone, with the region’s largest economy, Germany, barely avoiding a slip into recession. German growth ground to a halt in the fourth quarter of 2018, holding steady after shrinking 0.2% in the previous quarter. (A common definition of a recession is two consecutive quarters of negative growth.)
The British pound was down against the U.S. dollar for the week after the UK Parliament rejected Prime Minister Theresa May’s strategy to withdrawal from the European Union (EU). It voted down a motion that reiterated the government’s plan to seek changes to the so-called Irish backstop, which is the contentious plan to avoid a hard border in Ireland.
The Nikkei 225 Stock Average rallied 567 points (2.8%) for the week and closed on Friday at 20,900.63, ahead 4.4% in 2019. The large-cap TOPIX Index and the TOPIX Small Index also generated strong gains of more than 2% for the week. Both broader indexes are ahead about 5.5% for the year to date. At the close on Friday, the yen stood at ¥110.49 per U.S. dollar, down slightly for the week and versus the ¥109.69 level at the end of 2018.
Chinese stocks rose as mainland investors returned from a weeklong Lunar New Year holiday in a buying mood. However, reports of ongoing disagreements between U.S. and Chinese trade negotiators raised doubts about the likelihood of both sides striking a deal by March, when the U.S. is set to ratchet up tariffs on Chinese imports. For the week, the Shanghai Composite Index added 2.5% and the CSI 300 Index of major stocks in Shanghai and Shenzhen climbed 2.8%, marking the biggest weekly gain in three months for both indexes, according to Reuters.
Portions of the preceding information are reprinted with permission from Broadridge Investor Communication Solutions, Inc. Copyright 2019. Portions of the preceding information are shared from T. Rowe Price Weekly Market Wrap-Up.
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GYL Resnick Weekly Update – February 25, 2019