July 13th 2018 Market Minute

July 13, 2018

The Russell 2000 (1,708) and NASDAQ Composite (7,825) both hit an all time high again this week. Crude Oil (Sweet) ,$69.59, dropped back below $70 for the first time since June 26th 2018. US Treasury Yields were mostly unchanged from last week. Gold closed at $1,241 per ounce. Gold is well off its 2018 high of $1,370 per ounce.

Equity performance divergence this year has so far been quite pronounced. For example the NASDAQ is up over 13% yet the DOW Jones Industrial average is barely positive. The gap between some SP 500 Sector performance is even more noteworthy.

For the week ending July 6th 2018:

Technology: +13.5%                               Materials: -2.5%

Consumer Discretionary: +12.6%       Financials: -3.7%

Energy: +6.5%                                         Industrials: -4%

Health Care: +5%                                    Telecom: -6.4%

Utilities: 2.8%                                          Real Estate: 2.6%

Source: Standard and Poors

The Chinese Yuan dropped .7% on Wednesday vs. the US Dollar. This was the largest drop in almost 18 months. The Yuan recovered on Thursday, gaining .6% versus the US$. For the year the Chinese Yuan is down about 2% versus the US Dollar.

The Bank of China has allowed their currency to weaken vs. the US$, lowered reserve requirements for banks, and allowed their interest rates to go lower in 2018. The Chinese are seeing weakness in their economy and are trying to do something about it. The question will be, “Can they maintain their growth objectives despite the US Federal Reserve raising interest rates?” Due to the ‘link’ or ‘peg’ between the Chinese Yuan and US Dollar this also ties the two countries interest rates and growth prospects together. Thus the Bank of China and US Federal Reserve are engaged in diametrically opposed actions.

Chinese 10 Year Bond Yields started 2018 at 3.88% and have dropped to 3.51%. US 10 Year Bond Yields started 2018 at 2.43% and have risen to 2.85%
Bloomberg Barclays Local Currency Debt Index started 2018 at 4.5% and has risen to 7.5%.

Bottom line though is that so far increases in US interest rates are having a ‘magnified’ impact outside the US. It is yet to be determined if these impacts will circle back around to the US Economy.

Source: WSJ, Thompson One Financial

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