Market Insights 5/10/2019

U.S. equities bounced off the lows of the day that came amid angst over the U.S. keeping its promise to institute levies on Chinese goods to finish higher, as investors appeared hopeful for a breakthrough on a deal with talks with the Asian nation continuing today.

Treasury yields and the U.S. dollar finished nearly flat, while crude oil prices were mixed and gold was higher.

The Markets…

The Dow Jones Industrial Average rose 114 points (0.4%) to 25,942

The S&P 500 Index was up 11 points (0.4%) to 2,882

The Nasdaq Composite added 6 points (0.1%) to 7,917

In moderate volume, 862 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.04 lower to $61.66 per barrel and wholesale gasoline was up $0.01 at $1.99 per gallon

The Bloomberg gold spot price increased $2.40 to $1,286.48 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was unchanged at 97.38

Markets were solidly lower for the week, as the DJIA fell 2.1%, the S&P 500 Index declined 2.2% and the Nasdaq Composite decreased 3.0%

Consumer price inflation mostly cooler than expected

The Consumer Price Index (CPI) rose 0.3% month-over-month in April, below the Bloomberg estimate calling for it to match March’s unrevised 0.4% rise. The core rate, which strips out food and energy, was 0.1% higher m/m, versus expectations of a 0.2% increase and in line with March’s unrevised gain. Y/Y, prices were 2.0% higher for the headline rate, south of forecasts of a 2.1% gain and compared to March’s unadjusted 1.9% rise. The core rate was up 2.1% y/y, matching projections and compared to March’s unadjusted 2.0% gain.

Treasuries were nearly unchanged, as the yield on the 2-year note ticked 1 basis point lower to 2.25%, while the yields on the 10-year note and the 30-year bond were flat at 2.46% and 2.88%, respectively.

Europe mostly higher on data and despite increased tariffs on Chinese goods, Asia lower

European equities finished out the week mostly higher amid some upbeat economic data, while the markets pared some solid losses seen this week leading up to today’s announcement that the U.S. will go ahead of with increased tariffs on Chinese goods. Talks between the U.S. and China are continuing today and the action suggests that hope remains that some sort of progress will be made to help limit the sting from the increased levies on Chinese goods.

The economic calendar in the region seemed to lend some support, with U.K. Q1 GDP growth accelerating to the fastest pace of growth (1.8% y/y) since 2017, likely due to some maneuvering ahead of Brexit, and U.K. manufacturing/industrial production in March growing more than forecasted. Moreover, German exports unexpectedly rose in March. The euro and British pound rose versus the U.S. dollar, and bond yields in the region were mostly higher.

Stocks in Asia finished mixed to conclude a week that saw a broad-based slide amid increased trade concerns as the U.S. went ahead with its threat to increase tariffs on Chinese goods as talks continue today in Washington.

Chinese stocks finished higher, with those traded on the mainland rallying and markets in Hong Kong posting modest gains. The moves came as the markets fell sharply leading up to today’s tariff action and as talks continue today.

Stocks in Japan’s declined, with the yen choppy following March data that showed the nation’s household spending was stronger than expected though wage figures fell more than anticipated. Equities in South Korea and Australia both gained ground, while shares in India moved to the downside.

Stocks fall as trade deal threatened

The global markets fell on the week, with U.S. stocks posting the biggest weekly losses of 2019, as optimism of a trade deal between the U.S. and China, which had been elevated, was dampened by the U.S. increasing tariffs on Chinese goods on Friday, with President Donald Trump saying China “broke the deal.” The two sides are continuing talks in Washington amid the escalated tensions.

The economic calendar was a bit lighter than usual and was overshadowed by the trade concerns, but data showed inflation remained subdued, the trade deficit widened slightly and demand for labor rebounded back to near record highs. Earnings season also decelerated and headed down the home stretch. Of the 450 S&P 500 companies that have reported thus far, about 55% have topped revenue forecasts and nearly 76% have bested earnings estimates, per data compiled by Bloomberg. The U.S. dollar dipped for a second-straight week, crude oil prices slipped for a third-consecutive week, and Treasury yields fell noticeably.

Trade uncertainty jumped back into the headlines with threats of additional tariffs coming alongside worsening prospects of a China/U.S. deal. Earnings season was mostly better than low expectations, but still only roughly flat in year/year growth.

The economy continues to look fairly solid, although there are some cracks under the surface that raise some concerns. It’s not just the United States that suffers from the trade war; however lower correlations among major global asset classes bolster the case for diversification.