- The stock market gained again on hopes for progress in U.S.-China trade talks.
- Core consumer prices rise; retail sales robust.
- Retail used vehicle sales and prices strong.
The stock market kept its winning streak going for a third straight week, and again it was mainly related to rising hopes of progress with U.S.-China trade talks. Meanwhile, the European Central Bank beat the U.S. Fed to the rate-reduction punch by lowering its official rate by 10 basis point in the EU – it is now down to a negative 0.5% – and re-starting quantitative easing in Europe.
The market also cheered the latest data that point to the consumer keeping the U.S. economy in drive.
Consumer prices rise: Core consumer prices are heating up despite headline inflation that is staying low due to lower energy costs. As a result of the lower headline inflation, the consumer is seeing real gains in earnings due to the strong labor market. Consumer credit also is expanding to support more spending. Overall retail sales were stronger than expected in August.
The consumer has been the sole source of growth in the U.S. economy this summer. With consumer sentiment appearing to recover somewhat in September, consumer spending could continue to power economic growth in the third quarter. However, if gas prices remain elevated following the spike in oil from the attack in Saudi Arabia, higher energy costs could change consumer attitudes.
Strong used vehicle sales, prices: Cox Automotive reported that as a result of another strong month of retail used vehicle sales, used vehicle prices gained in August and produced a new record on the Manheim Index. However, this year we are seeing normalizing depreciation, which is resulting in difficult comparisons to last fall’s price index gains that continued through October. We are not likely to see new records on the Manheim Index over the next few months. That’s good for the market, as used vehicle prices will remain more in balance with new vehicle prices this fall than they ended up last year.
Looking ahead: We’ll receive August new construction and existing home sales data, and we will learn about the Fed’s rate decision and latest communication about U.S. monetary policy. We will also learn the outcome of a UAW strike against General Motors which, once settled, will move the spotlight on negotiations with Ford and Fiat Chrysler Automobiles.