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Weekly Market Review – 7/1/2019

Friday put a wrap on the week, the month, and the second quarter.  Equity markets were mixed while treasury yields continued their descent.  Markets were looking to the coming weekend’s highly anticipated G20 meetings for indication of how U.S.-Sino trade conflicts may proceed.  Additionally, there was a fairly robust economic calendar and escalating U.S. Iranian tensions to digest. Commodities and commodity currencies (AUD, NZE, CAD) shared some modest strengths last week on the back of energy and metals, both precious and industrial.

 

Market Anecdotes

  • Highly anticipated G20 meetings produced the expected renewal of U.S.-China trade talks and a tabling of additional U.S. tariffs on all remaining Chinese imports.
  • Chair Powell and five other Fed Governors made public appearances last week to address the Fed’s shift toward an accommodative bias at the June FOMC meeting.  Deteriorating economic conditions, trade concerns, and global growth slowdown were highlighted.
  • Escalation of U.S.-Iranian tensions have translated to significant sanctions, possibly curtailing potential diplomatic solutions.  Equity market volatility has responded in kind.
  • Financial stocks received a boost from the Fed’s CCR (stress test) report.  Bank capital plans were approved which authorize stock buyback and dividend plans beyond what was forecasted by analysts.
  • Buckle up.  The Democratic debates kicked off last week in what looks like a bipartisan race for who can out populist the other.  The European Parliament elections took place last week, now the search for Draghi’s heir (October) begins.
  • June’s University of Michigan’s inflation survey made a new all-time low (30 years of data) 2.2% for forward 5-10- year expectations - lower than the dark days of 2008.
  • 23.4% of the Global Aggregate Index is currently in negative yield territory, $12.75t of the $54.39t market.  This is the highest level we’ve seen since the record 26% in 2016.
  • Oil rallied last week on declining U.S. inventories (increased exports and summer driving), an extension of OPEC/Russia production cuts, and continued angst in the Middle East.
  • U.S. power generation (MWh) from renewable sources outpaced coal fired sources for the first time in April.
  • Gold broke decisively through the $1375-$1400 resistance level which is bullish for the metal.  GLD experienced its largest one day inflow on record with the U.S.-Iran standoff looming.
  • Liquidity is a key driver of risk assets.  M2 acceleration, central bank accommodation, robust equity markets, and thin credit spreads are all supportive observations on this key front.

 

Economic Release Highlights

  • May PCE prices rose 0.2% headline and core with a YoY core reading of 1.6% - well below the 2% target but marginally higher than expected.
  • May PCE consumer spending (0.4%) and income (0.5%) readings came in at or better than expectations and along with a 0.3% upward revision to April consumer spending, now 0.6%.
  • U.S. Citi Economic Surprise Index (-67.5) came in only 0.73 above the April low and more negative than any other country or region.  Meanwhile, Eurozone readings are trending higher.
  • June consumer sentiment of 98.2 was slightly higher than consensus and exactly where we were in June 2018.
  • Tariff and trade concerns were cited as the primary cause for June’s unexpected 10-point drop in Consumer Confidence report to 121.5 (132 consensus).
  • Durable goods orders declined 1.3% in May, missing expectations.  However, both ex-transportation (0.3%) and core capital goods (0.4%) registered respectable gains.
  • The June Chicago PMI of 49.7 was the first sub-50 reading in 2 ½ years and was a notably miss of consensus 53.6.
  • The third and final Q1 GDP figure came in unchanged at 3.1%.  Consumer spending was downgraded but offset by an increase in non-residential fixed investment.
  • May new home sales of 626,000 fell far short of expectations, raising some concerns about the strength of the housing recovery.  The 3-month average declined for the first time in 2019 but still sits 91,000 over December levels.  Prices were down 8.1%MoM in May.
  • May pending home sales grew 1.1%, well higher than the 0.6% consensus and the best showing since last July.
  • The April Case Shiller HPI posted a 0% gain for the month and 2.5%YoY, both falling short of consensus expectations.

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