Trade Battles and Emerging Market Struggles Will Drive Market Direction

Sep 17, 2018
Currancy Collage

Trade and Emerging Markets in Spotlight 

With the southeast grappling with the aftermath of Hurricane Florence, and with the Fed going quiet before the FOMC meeting next week the spotlight will be squarely on the continuing trade/tariff negotiations and the emerging market currency crisis. Apart from those headline grabbing issues August Existing Home Sales and Housing Starts/Permits will give us the latest view of the housing market. Expectations are for the reports to print close to July results and thus the recent plateauing of housing activity is expected to continue as we head towards the seasonally slower fall period. Away from housing, the September Empire Manufacturing Survey and Philly Fed Business Outlook will gives us an early read on business sentiment and activity for September.



Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar


Top Events of the Week Top 5 Events for the Week

SEPT. 17 - 21,  2018

1. Trade/Tariff Tensions & Emerging Markets — All Week
2. August Existing Home Sales — Thursday
3. August Housing Starts & Permits — Wednesday
4. September Empire Manufacturing — Monday  
5. September Philly Fed Business Outlook — Thursday



1.  Trade Negotiations and Emerging Market Developments — All Week

Emerging markets and trade /tariff developments will continue to loom over markets and with a limited slate of economic releases it allows D.C. and overseas developments to occupy center stage. With some movement in talks between Canada and the E.U. it’s expected that China discussions will push the others out of the spotlight.  With the additional $267 billion in tariffs on Chinese goods announced after the $200 billion levied the week prior the latest Trump trade salvo may very well prompt some type of tit-for-tat response from the Chinese. In addition, the emerging market currency crisis isn’t going away, especially with the likelihood of the Fed hiking another 50bps this year and more next year. That will keep the pressure on foreign currencies and only feed the crisis. We expect these twin issues will limit any back-up in long-term Treasury yields despite the solid string of domestic economic results.


2.  August Existing Home Sales — Thursday

The housing market has had mixed releases lately so the pair of existing sales and housing starts figures will be watched closely this week. Existing home sales account for nearly 90% of the market and give us the broadest view of market health but with data based on closings it can be a bit dated. For August, existing home sales are projected to total 5.38 million annualized units which is slightly up from the 5.34 million in July. The average over the past year has been 5.47 million annualized so in keeping with recent housing releases a slightly below-average print is expected with minimal sequential change.


3.  August Housing Starts & Permits — Wednesday

Housing starts for August are expected to increase 5.2% month-over-month with an annualized starts number of 1.235 million versus 1.168 million in July. The average over the past year has been 1.249 million so a slightly below-trend starts number is expected but with a sequential increase versus July. Permits, which aren’t subject to the vagaries of weather which can impact the starts number, are expected to increase slightly to 1.310 million annualized versus 1.303 million the prior month. The average over the past year has been 1.322 million, so a slightly below average print is expected but a slight sequential increase versus the prior month. In summary, the housing numbers are expected to show a slight bounce back from a somewhat disappointing July but the rebound is expected to be modest at best.


4.  Empire Manufacturing Survey for September — Monday

The Empire Manufacturing Survey is a look at the New York Fed region’s manufacturing outlook. It’s typically one of the first surveys involving the manufacturing sector which includes the tri-state area of New York, New Jersey and Connecticut. The August reading was the highest in 2018 after July retraced slightly from the previous year-to-date high set in June. The just-released September report reflects some impact from the dust-up over trade and tariffs as it printed a disappointing 19.0 versus 25.6 in August and a 23.0 expected reading.  The new orders sub-index declined for the third straight month and prices received versus prices paid hints at more profit compression.


5.  Philly Fed Business Outlook for September — Friday

The August read on business sentiment in the Philadelphia Fed region disappointed with the lowest reading of the year as tariff concerns gripped much of the survey’s findings. While the 11.9 reading was the lowest since November 2016, the September survey is expected to rebound to 15.8 as the worst fears over tariffs and trade wars ratchet down a bit. That being said, if the 15.8 expectation is met it would still represent the second lowest reading of the  year so certainly not an all-clear from the Philly district but off the yearly low of August.

Empire Manufacturing & Philly Fed Outlook




Technicals Investment Yield Ranges Over Last Year


US Treasuries

FHLB Agency Bullets

Mortgage Backed SecuritiesMunicipals

US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg





Tom Fitzgerald Signature

Thomas R. Fitzgerald

Director, Strategy & Research



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