Interest rates jumped amid a strong jobs report with the 10-year treasury yield increasing a significant 16 basis points to 3.22%, its highest since 2011. The rise in interest rates weighed heavily on both the bond and stock markets with the major indexes finishing the week significantly lower. However, the alarmingly narrow spread between the 10-year treasury yield and the 2-year treasury yield widened by 7 basis points to 0.30%, also due to the rise in interest rates. Commodity prices saw gains with the price of gold rising 1.00% to $1,207 an ounce and the price of crude oil rising 1.18% to $74.34 a barrel. The U.S. dollar index saw a moderate increase, rising from 95.16 to 95.63.
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THIS WEEK’S HIGHLIGHTS
- The ISM Manufacturing Index fell slightly from 61.3 in August to 59.8 in September due to concerns over tariffs. Headlining the decline in the index was a 3.3 point drop in new orders to 61.8. However, production rose 0.6 points to 63.9, its strongest reading since January of this year.
- Initial unemployment claims dropped by 7,000 for the week ending September 29th to 214,000. Continuing unemployment claims also dropped but by 13,000 to 1.66 million. Both initial and continuing unemployment claims remain near all-time lows.
- Hurricane Florence appeared to have little impact on September’s employment situation as the U.S. added 134,000 jobs. The increase in jobs lowered the unemployment rate to 3.7% from 3.9% the month prior. Wage growth also rose as the average hourly earnings increased 0.3%, resulting in a year-over-year increase of 2.8%.
- The U.S. trade deficit widened by $3.2 billion (6.4%) in August to a 6-month high of $53.2 billion. The increase has resulted in a year-over-year increase of $31 billion (8.6%). The trade deficit between the U.S. and China also grew deeper, increasing from $36.8 billion to $38.6 billion.
This article highlights the benefit of having emerging markets in your portfolio despite recent weakness.
The U.S., Canada, and Mexico have agreed to NAFTA 2.0 which is now being called United States – Mexico – Canada – Agreement (“USMCA”). The revised free trade agreement will allow the U.S. to have greater access to Canada’s large dairy market, encourage domestic production of automobiles, increase environmental and labor regulations, and provide greater protection on intellectual property.
QUOTE OF THE WEEK
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
– Adam Smith