• Stock markets around the world were lower once again last week, amid headlines surrounding U.S./China trade negotiations.

• Yield spreads between 10- and 2-year U.S. Treasuries inverted at the end of the week.

• Global non-manufacturing economic indicators and employment trends are stable, but investors remain uneasy.

Equities around the world finished lower last week. The S&P 500 finished down 1.4%, marking its fourth straight week of declines.1 U.S. equity indexes ended lower for the week, with the week’s early gains reversing on Friday on a variety of headlines surrounding U.S. and China trade policy. Yield curve inversion was still in play, as the spreads between the 10- and 2-year Treasury yields inverted on Thursday and Friday.1

Weekly Top Themes

1. U.S. Manufacturing PMI fell below the floor of 50 in August to 49.9, while the U.S. Services PMI dropped more than expected to 50.9 from 53.2 The capital markets are debating how much of this decline is a result of actual activity and how much is tied to capital markets volatility and uncertain economic policy in Washington D.C.

2. Federal Reserve Board Chairman Powell’s speech on Friday was in line with expectations. In our view, his goal was most likely to validate current market expectations for a 25-basis point cut in September.

3. Unrest in Hong Kong is a wild card in the U.S./China trade dispute. It would have been most obvious for the Chinese government put an end to the protests before they grew into open rebellion. Now, President Xi has limited options: wait and hope protests abate, or send in troops to end the rebellion. Neither choice seems favorable to us.

4. President Trump aggressively pushed for lowering capital gains taxes by indexing gains to inflation. This is the president’s strongest statement made to date on the issue. In the meantime, discussions over a payroll tax cut have been increasing, but seem very unlikely to pass.

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