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Afternoon Debrief for the 13th of August 2019

Stock market boosted by tariff delay, tech stocks lead advance

The stock market has received a boost after the U.S. delayed a 10% tariff rate on certain items imported from China until Dec. 15, while removing other items altogether. The trade-sensitive technology stocks have powered the Nasdaq Composite (+1.9%) ahead of the S&P 500 (+1.6%), Dow Jones Industrial Average (+1.6%), and Russell 2000 (+1.2%). 

The USTR stated that cell phones and laptops will be included among the tariff-delayed items that were initially scheduled to be taxed on Sept. 1. According to The Wall Street Journal, the first list of tariffs that will go into effect Sept. 1 will be valued at $220 billion, and the second list that will go into effect Dec. 15 will be valued at $80 billion.

Shares of Apple (AAPL 208.55, +8.07, +4.0%) and semiconductor companies have reacted positively to the news and have contributed to the leadership of the S&P 500 information technology sector (+2.2%). The tech sector may be carrying its weight, but the broader market has also received support from gains in the other ten S&P 500 sectors and a nice 4.0% gain in the price of oil ($57.23, +2.30).

President Trump told reporters that he delayed the tariffs due to concerns over the Christmas shopping season and that he had a very productive call with China today. On a related note, China said that trade talks will resume over the phone within the next two weeks.

Prior to the tariff news, general sentiment was risk-averse, as investors continue to fret over geopolitical uncertainty and growth concerns. The tariff delay doesn’t guarantee a quick resolution to a trade deal, as it simply delays the tariffs on consumer products, but it does help investors remain more optimistic amid global economic uncertainty. 

The Hong Kong protests, for instance, have continued to cause some anxiety among market participants. The situation has not gotten any better with riot police recently confronting protesters in the city’s airport after flights were canceled for the second consecutive day.

U.S. Treasuries have declined in a knee-jerk reaction, sending yields higher across the curve. Currently, the 2-yr yield is up eight basis points to 1.66%, and the 10-yr yield is up four basis points to 1.68% — narrowing the spread between the yields to just two basis points. The U.S. Dollar Index is up 0.4% to 97.77.

Reviewing today’s economic data, which included the Consumer Price Index for July and the NFIB Small Business Optimism Index for July :

  • Total CPI increased 0.3% m/m in July, as expected, while core CPI, which excludes food and energy, also increased 0.3% (Briefing.com consensus 0.2%) for the second straight month. Those readings left total CPI up 1.8% yr/yr, versus 1.6% in June, and core CPI up 2.2% yr/yr, versus 2.1% in June.
    • The key takeaway from the report is that it muddles the monetary policy outlook. The year-over-year readings are not exactly “rate-cutting” material, but with everything else going on, the market will be left to conclude that another rate cut is likely since the Fed will want to ensure that everything else going on doesn’t lead to a caustic slide in inflation expectations.
  • The NFIB Small Business Optimism Index for July increased to 104.7 from 103.3 in June.
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