Tariffs, trade rhetoric, and the suggestion of more Huawei type sanctions drove equity markets (DJIA) to a fifth consecutive weekly loss for the first time since 2011. Growth stocks have borne the brunt of the selling, but market breadth has remained respectable. Oil posted its worst week of the year due to global growth concerns stemming from a relatively weak plate of global PMI data while U.S. treasuries and USD rallied strongly in a safe haven trade. EU parliamentary elections were closely watched to gauge the populist/nationalist tide in Europe.
- The U.S. joined the sluggish global economic data party with a miss and the lowest PMI reading since the GFC. New orders declined for the first time since August 2009.
- A report surfaced that the Trump-Xi meeting at the upcoming June G-20 summit may not occur, sparking more pronounced volatility on Thursday.
- The NY Fed posted a study forecasting current tariffs are imposing a cost of $831/yr on the average U.S. household. POTUS announced $16b of farm bailouts (2018 $12b) in response to market pressure.
- As markets expected, PM Theresa May announced her intent to step down on June 7th, having failed to rally majority support for her negotiated Brexit plan. The process for securing a successor will wrap sometime in July with the October 31st deadline looming.
- Oil has plunged 13% in the past month as supply concerns (Iran) are overshadowed by demand concerns (global growth).
- A slight shift in tone with the U.S.-Iran tensions toward traditional diplomacy occurred last week. U.S. sanctions, troop deployments, and weapons sales to regional Iranian opponents are countering anti-U.S. rhetoric, vessel/infrastructure aggressions, a rocket launch into Baghdad, and the detainment of 4 American citizens by Iran.
- The S&P growth index surpassed its prior record relative strength reading (to value) which dated all the way back to 3/27/00.
- Earnings season is a wrap (456 of 500 S&P companies reported) with sales up 4.6% YoY and EPS up 1.8% YoY. Tech, materials, and energy declined YoY but all other sectors reported YoY growth.
- High yield spreads (422) took out their prior May wides (420) last week and are now up 15% since the middle April level of 368.
- Curve inversion is back in the conversation as the 3m/10yr went negative for a third time since March but 2/10 and 2/30 remained positive.
- FOMC minutes reflected a pre-trade war tone so discount accordingly. There were 14 Fed circuit speakers including Powell, Vice Chair Clarida plus several regional Fed presidents. Powell’s comments focused on risks to the financial system stemming from the increase in U.S. corporate debt to record levels but highlighted several
- Modi won a resounding election victory in India for another five-year mandate. The Rupee and SENSEX both moved sharply higher on the outcome.
- Italian economy generated a record nominal current account surplus in Q1 (€54.4b Q1 annual run rate vs €65b deficit in Q4 2010 as EZ crisis kicked off).
Economic Release Highlights
- April existing home sales missed expectations (-0.4%M/M) but prices notched a 2.9% gain for the month. Three month average sales look encouraging at 5.293mm and we saw a welcomed increase in supply to 4.2 months.
- April new home sales fell 6.9% but prices climbed 11.9% and there were nice upward revisions to the prior two months. The three-month average nhs increased 2.4% over March.
- U.S. PMI of 50.9, 50.6, 50.9 (composite, manufacturing, services) offer an early glimpse of the fallout of the breakdown of trade talks. EZ PMI of 51.6, 47.7, 52.5 pointed to another sluggish month. EZ manufacturing PMI registered a fourth straight sub-50 read.
- Japan’s manufacturing PMI was 49.6.
- Durable goods orders declined 2.1% in April. Core capital goods (business investment & capex) fell 0.9% along with downward revisions to March.