Yields Tumble and Stocks Drop on Weak Data

Yields Tumble and Stocks Drop on Weak Data

14 Aug 2019

Riskier assets took a turn for the worse on Wednesday after US stocks rallied on Tuesday. The surge in US equities came as US trade negotiators announced that many of the items scheduled for new tariffs as of September 1, would be pushed back and come after the Christmas Holiday. It appears the Trump administration was the first to blink. China reported weaker than expected economic data while the US reported stronger than expected consumer prices.

Chinese Economic Data was Weaker than Expected

China's economic reports came in weaker than expected.  Industrial output slowed to a 17-year low at 4.8%, compared to expectations of 6%. Retail sales slowed from a 9.8% year over year in June to 7.6%.  Fixed asset investment declined to 5.7% from 5.8%. 

US Consumer prices rose more than expected in July as gasoline reversed a two-month decline. The consumer price index was up 0.3% for the month, against expectations for a 0.2% increase. Gasoline rose 2.5% while shelter costs increased 0.3%. Excluding food and energy costs, the index was still up 0.3%, which was in line with estimates. Year over year core inflation rate increased 2.2%, while the headline number was up 1.8%.

Trump Was the First to Blink

The equity markets rallied following Tuesday’s announcement from the Trump administration and viewed it as the first blink by the Trump administration despite the White House’s claim that China would bear the brunt of tariff impacts, the trade war was indeed hurting US consumers. Trump told reporters that he postponed tariffs for the Christmas season in case it had an impact on shopping and the delay would help a lot of people. China on the other hand was digging in. It announced last week that it would not resume buying US agricultural products, despite assurances otherwise by Xi to Trump at the June G-20 summit.

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