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Perspectives from Above the Noise -- Week of August 15, 2016

Perspectives from Above the Noise -- Week of August 15, 2016

August 18, 2016

U.S. stocks edged lower on Friday after an unexpected stall-out on last month’s retail sales, but the S&P 500 eked out its sixth weekly gain in the past seven weeks. The NASDAQ Composite finished at a new all-time high for a second week. Energy shares led the advance as crude oil posted its strongest weekly gain since April, while earnings results from the leading department stores boosted optimism.

For the week, the S&P 500 rose +0.12%, the Dow Industrials gained +0.18%, and MSCI EAFE (developed international) soared +2.85%. 

What We’re Reading

Comparing the Candidate's Economic Plans -- BBC News

Low Oil Challenges Eurozone Inflation -- Bloomberg 

Brexit May Be Delayed Until 2019 -- Bloomberg

Chart of the Week: Global 3Q Outlook Improves, Although U.S. & China Retail Sales Disappoint

J.P. Morgan’s bottom-up forecast for third quarter 2016 global GDP growth is unchanged at a 2.5% annualized rate this week. This forecast projects a 1.6% gain in the Developed Markets and 4.0% growth in Emerging Markets. If realized, both regions will have accelerated quarter-over-quarter. We received a number of 2Q GDP reports this week with offsetting country results, keeping the global aggregate unchanged from last week. Second-quarter GDP results surprised to the upside in Hong Kong, Russia, and Romania but disappointed in Hungary, Malaysia, and Singapore. The Eurozone’s revised 2Q GDP release was a touch weaker at 1.1% (vs. 1.2% in the preliminary release), though this is stronger than the soft national production data suggested.

Turning to the current quarter, as the above chart indicates, the GDP Global Nowcast for third quarter global growth rose notably this week, to a solid 2.7% annualized pace from 2.5% last week. While this is encouraging, we note that most nowcast model projections are unavailable at the start of the tracking quarter. The data for 3Q are now in hand for the July global PMIs and auto sales. Both are moving in the right direction with the July manufacturing PMI up a solid 1.7 percentage points and auto sales up 1.4% month-over-month (MoM).

At the country level, the latest July activity reports from the U.S. and China suggest caution. U.S. July retail sales disappointed, though this follows a quarter in which total goods consumption surged nearly 10%. Similarly, China’s retail sales decelerated to a 0.8% month–over ̶ month pace from a 1.5% clip in June. Industrial production also decelerated in China with a weak 0.2% month–over ̶ month increase in July.

Articles chosen and summarized by the Tower Square Investment Management team. Tower Square Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Tower Square Investment Management individuals who provide investment management services are not associated persons with any broker-dealer. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.