Market Update: Friday, May 19, 2017


Yesterday’s Market Activity

  • U.S. markets stabilized as traders looked for opportunities in tech and financial stocks Markets pared gains heading into the close; S&P 500 +0.4%, Nasdaq +0.7%, Dow +0.3%
  • Dollar stabilized (+0.3%); 10-year Treasury yield up to 2.23%
  • Investors’ focused on positive fundamentals supporting global economic growth, corporate profitability
  • Emerging markets struggled following reports of a bribery scandal involving the President of Brazil

Overnight & This Morning

  • Asian equities stabilized as most major equity indices held firm, MSCI EMG +0.3%
  • Chinese corporate bonds under pressure as Beijing attempts to limit speculation with investors adjusting corporate spreads reflect possible increased default risk
  • European equities up ~0.6% after three days of declines. Sovereign bond yields slipped as speculation mounting that the European Central Bank (ECB) will begin building the case for unwinding stimulus at its June meeting
  • Commodities are mostly higher, WTI headed ($50.60/bbl.) for second consecutive weekly gain ahead of next week’s OPEC meeting (5/25) in Vienna; expectations for nine-month extension of production cuts
  • Base metals (Copper -1.5%) outperforming precious metals (Gold -0.2%, $1250/oz.)
  • Major domestic indexes up 0.7%; Treasury yields up (10yr note +3bp to 2.26%)
  • U.S. dollar weakening; several research reports highlight political risks


Macro Notes

  • Brazil crashes. On Wednesday night, Brazilian newspapers ran a story implicating President Michel Temer directly in a bribery scandal. Brazilian stocks fell 10% on Thursday, with its currency, the real falling another 7%. Temer himself assumed power one year ago after the impeachment of then President Dilma Rousseff. Brazil is large component of emerging market indices, and will have an impact on index funds as well as managers who are highly index aware.
  • Week ahead. Next week’s domestic economic calendar includes data on preliminary purchasing manager surveys (manufacturing and services) from Markit, housing, trade, durable goods, and revised first quarter gross domestic product (GDP). The Federal Reserve (Fed) will remain in focus with minutes from the May 3 Federal Open Market Committee (FOMC) meeting due out Wednesday (May 24) and several Fed speakers on the docket-a roughly even balance of hawks and doves. We believe the market is correctly pricing in a June 14 rate hike. Overseas economic calendars are busy with a series of data in Europe, including first quarter German and U.K. GDP, German business confidence, and Eurozone purchasing manager surveys; and in Japan (trade, manufacturing and inflation data).


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Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

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