Yesterday’s Market Activity
- Slight increase in stocks Thursday. Neither the Comey testimony nor the European Central Bank announcement offered any big surprises while markets remained calm ahead of the U.K. election. The S&P 500 and Dow were unchanged, though the Nasdaq (+0.39%) fared better. The small cap Russell 2000, somewhat of a barometer of confidence in the Trump agenda, jumped 1.36%.
- Financials led on higher rates and deregulation hopes. The sector rose 1.14%, well ahead of second place finisher technology (0.35%) on the slight rise in yields (+0.01% to 2.19%) and deregulation prospects. Defensive sectors (consumer staples and utilities) lagged, losing nearly 1%.
- EM strength continued. The MSCI Emerging Markets (EM) Index gained 0.35% yesterday on strength in China, Korea and Taiwan, and it is now up 19.1% year to date. Gains came despite Thursday’s losses in developed international markets (MSCI EAFE -0.46%). Copper (+2.3%) was a positive read-through into China.
Overnight & This Morning
- U.S. stocks up slightly this morning. Gains in Europe on the somewhat surprising positive reaction to U.K. election result are helping U.S. equities. Markets appear comfortable with the political environment and prospects for the Trump administration and the Republican party to accomplish reform.
- European markets are higher. The German DAX (+0.5%) and French CAC (+0.8%) both higher. German trade data are strong.
- The U.K. pound declined as much as 1.5% overnight, but had a modest rebound in Friday morning trading. The U.K. market is up Friday morning, with most sectors, even financials (which might be have been expected to be down on pound weakness) positive. Only U.K. real estate firms declined in the morning.
- Asian markets mixed. Nikkei +0.52%, Hang Seng -0.13%, Shanghai Composite +0.26%. There were no surprises in Chinese inflation data.
- The broad U.S. Dollar Index is about 0.4% higher.
- Bonds little changed; the 10-year Treasury yield is at 2.20%.
- Dodd-Frank changes: The Financial CHOICE Act (which passed the House yesterday) is getting attention in the financial press. The Senate will go in a different direction. Parts of the DOL Fiduciary Rule go into effect today.
- Today’s economic calendar includes business inventories.
- We do not expect the U.K. leadership transition to have material impact on the U.S. economy or markets. Brexit will move ahead (though there is some debate about what it will look like) and financial institutions will likely leave London. But the U.S. does not have significant exposure to the U.K. and is unlikely to see any noticeable economic or market impact.
- Market shrugs off Comey testimony. Based on Thursday’s action, markets appear reasonably confident still that President Trump gets some of his fiscal policy initiatives done, notably tax reform. It’s hard to say where the ongoing special counsel investigation goes, and markets can be wrong, but we view gains in stocks, yields, the U.S. dollar, and relative strength in cyclical equity sectors over the last 24 hours as positive signs.
- Thursday’s election in the U.K. resulted in what can only be considered a major loss for Prime Minister Theresa May. Her Conservative Party lost its majority in Parliament, though it still retains the largest number of seats. She has subsequently announced her intention to form a government with some smaller parties and continue the Brexit negotiations as planned, though there is some skepticism whether she will be successful.
- Week ahead. The Federal Open Market Committee (FOMC) meeting on Wednesday (June 14) including Chair Janet Yellen’s press conference highlights next week’s economic calendar, though the Bank of Japan also meets on Thursday, June 15. Noteworthy U.S. data due out include consumer and producer inflation, retail sales, industrial production, and housing starts.
- Wholesale Sales & Inventories (Apr)
- France: Industrial Production (Apr)
- UK: Industrial Production (Apr)
- UK: Trade Balance (Apr)
- China: Money Supply and New Yuan Loans (May)
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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