Small Businesses Are Still More Optimistic Than CEOs

If two countries are set to meet for negotiations, you want to see positive rhetoric from politicians and potentially even positive actions before the meetings. There was positive action when Trump delayed the latest round of tariffs from October 1st to the 15th. Unfortunately, it has been all negative recently which has pushed the odds of a trade deal lower.

The graphic below shows the most traded goods between China and the US. These are the goods which are affected by changes in trade policy.

If progress towards a deal isn’t made, markets will quickly shift to focusing on the meeting between the US and Europe on Monday which is right before the $7.5 billion in U.S. tariffs on Europe go into effect on October 18th.

PPI Inflation Falls

The September PPI inflation report showed declines across the board. Headline inflation fell from 1.8% to 1.4% which missed estimates for 1.8%. Producer inflation without food and energy was 2% which missed the consensus and August’s reading which were both 2.3%. As the chart below shows, core inflation without trade services fell from 1.9% to 1.7%.

This decline in inflation is exactly in line with the cyclical slowdown. Inflation bottomed in 2016 along with economic growth and it topped in 2018 with economic growth. It’s easier for the Fed to cut rates if inflation falls, but it’s falling because of the economic slowdown which is the reason for cuts in the first place.

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