Progress in U.S.-China trade talks and Powell’s comments that the Fed will “act as appropriate to sustain the expansion” outweighed slightly weaker economic data this week. The ISM Manufacturing PMI, a key indicator of U.S. manufacturing, hit contraction territory and the August payrolls came in lower than expected. The markets shrugged this off as the weaker data could give the Fed another reason to cut rates. British Prime Minister Boris Johnson had a very bad weak with Parliament thwarting his efforts to push forward with an October 31 Brexit with or without a deal. After weeks of protests, Hong Kong’s Chief Executive Carrie Lam withdrew the extradition bill that initially sparked the uprising but did not concede to the other four demands of the protestors. After slamming the Bahamas, a weakened Hurricane Dorian headed up the US coastline.
Global stocks rallied with the warming of trade tensions as well as strong data from China’s service sector. Small cap stocks rose but have been hit particularly hard by the trade tensions over the last year – with the S&P 600 down nearly 13% over the last twelve months. Yields bounced a little off the extreme lows of last week with the 10-Year Treasury yield ending the week at 1.55%. Oil prices, which have struggled this decade due to a glut of global supply and only moderate global demand, had a strong bounce last week that was also tied to the stronger service data from China.
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