The Impact of Trade

Chinese growth decelerated in the second quarter to 6.2%, the slowest pace since 1992, prompting expectations of additional government stimulus and perhaps an increased willingness to negotiate with the Trump administration. President Trump and Xi Jinping returned to the negotiating table in June after agreeing to a “tariff truce,” however, the step forward follows more than ten months of fruitless negotiations. Should the latest round of talks fall short, the Trump administration has been clear it plans to move forward with another round of levies targeting $300 billion worth of Chinese goods, exacerbating the pain on the Chinese economy and impact here at home.

The yuan is up 0.06% at 6.88 against the U.S. dollar as of 9:30am ET.

The dollar is up 0.08%, currently trading at $96.89 as of 9:32am ET.

Equities are up 1.80%, currently trading at 27,338.92 as of 9:33am ET.

Hurricane Barry made landfall in Louisiana as a Category 1 storm on Saturday before being downgraded to a tropical storm. According to the U.S. Bureau of Safety and Environmental Enforcement, some 1.3M bbl/day, or 70%, of oil production and 1.5B cf/day, or 55%, of natural gas output in the Gulf of Mexico was shut-in, with total southeast natural gas production falling to its lowest level of the year.

Crude is up 1.03%, currently trading at $60.83 a barrel as of 9:29am ET.

Speaking of disruptions, a chunk of New York City plunged into darkness Saturday evening as 73,000 customers on Manhattan's West Side, as well as subways, stores and Broadway theaters, lost power. No deaths or injuries were reported due to the outage, which occurred, as Bloomberg News reminds us, 42 years to the day from a major 1977 blackout that sparked looting and rioting across NYC.

This morning, the Empire Manufacturing Index rose from -8.6 to a reading of +4.3 in July, more than the expected rise to +2.0, according to Bloomberg, and a two-month high.

In the details, new orders rose from -12.0 to -1.5, and work hours gained from -2.2 to +3.8 in July, a two-month high. On the weaker side, prices paid fell from 27.8 to 25.5, shipments declined from 9.7 to 7.2 and employment dropped from -3.5 to -9.6 at the start of the third quarter, the lowest since January 2016.

Tomorrow, retail sales are expected to rise 0.1% in June following a 0.5% increase the month prior, import prices are expected to decline 0.7% in June, the second consecutive month of decline, and the NAHB Housing Market Index is expected to remain at a reading of 64 in July for the second consecutive month.

Later this week, on Wednesday, housing starts are expected to decline 0.7% from 1,269k to a 1,260k unit pace, while building permits are expected to rise 0.1% from 1,299k to a 1,300k unit pace, a five-month high. On Thursday, the Philly Fed Index is expected to rise from 0.3 to a reading of 5.0 and the Leading Index is expected to rise 0.1% in June following a flat reading in May. On Friday, the University of Michigan Consumer Sentiment Index is expected to rise from 98.2 to a reading of 98.7 in the preliminary July report, a two-month high.

This morning at 8:50am ET, New York Fed President John Williams will speak at a Libor briefing in New York.

-Lindsey Piegza, Ph.D., Chief Economist