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Equities had a strong week as officials from both sides of the trade war attempted to diffuse tensions, however, emerging market currencies and Treasury bond yields remained near their lows ahead of the start date for the next round of tariffs on Chinese imports. Incoming data showed strong consumer demand and weak investment, the antithesis of the favorable mix of growth that drove the recovery in productivity over the last 18 months. The Conference Board’s Labor Differential reached a new cycle high implying additional downside for the U6 underemployment rate and a tighter labor market. The revision to 2Q19 GDP showed strong underlying consumer demand with a worse mix of growth between consumption and investment. The July Durable Goods orders report showed core capital goods orders slipping into a marginally negative year-on-year rate prior to the last negative business confidence shock from the Trump Trade War. Regional Fed manufacturing survey 6-month forward capital-spending plans fell to their lowest level since the 2016 Presidential election in August following the August 1 announcement of additional tariffs on Chinese imports. Finally, the big four Chinese banks reported flat earnings confirming the weak state of the Chinese state-owned corporate sector.
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