Weekly Update 5.4.2018 – Choppiness Continues Amid Events, Earnings, Economic Data

US: S&P 500 Index -0.2%, Dow -0.2%, Nasdaq +1.3%
Europe: STOXX Europe 600 +0.6%, German DAX +1.9%, France CAC 40 +0.6%, U.K. FTSE 100 +0.0%
Asia: Japan Nikkei -0.0%, China Shanghai Composite +0.3%, Korea KOSPI -1.2%
Rates/Commodities: 10-Year Treasury yield -1 basis points to 2.95%, WTI crude oil +2.4%, COMEX gold -0.7%

It was another choppy week of trading for major U.S. indexes as investors digested several high profile events and top-tier economic data amid one of the busiest weeks of the first-quarter earnings season. Among the events, the Federal Reserve (Fed) held a monetary policy meeting but left rates unchanged, as expected; though some investors shifted their expectations towards three additional rate hikes this year—four total—after inflation data released ahead of the meeting came in just shy of the Fed’s 2% target. “The recent uptick in inflation is something to monitor, but it’s important to note that the current fed funds rate at 1.75% is low relative to history and is unlikely to cause major problems for the economy regardless of whether we get a total of three or four rate hikes this year” noted LPL Research’s Chief Investment Strategist John Lynch. Elsewhere, low expectations were met after in-person trade negotiations between the U.S. and China ended with an agreement to keep talking. Other notable economic data included manufacturing and services sector reports from several regions that painted a healthy picture of the global economy, but figures softened modestly month over month; the closely-watched U.S. nonfarm payrolls report showed that unemployment dipped below 4% to 18-year lows, though the headline figure on job creation fell short of economists’ expectations.

Overseas, European equities got a boost after President Trump extended tariff exemptions for countries in the region until June 1. Economic data was mixed with Purchasing Managers’ Indexes (PMI) showing a robust but softening business environment, while Eurozone inflation came in below expectations and prior month levels; however, it prompted one European Central Bank official to suggest a more cautious approach to removing current stimulus measures, which helped buoy sentiment. Asian markets were mixed on the week as caution reigned ahead of U.S. – China negotiations, though Japan outperformed in the region on strong corporate earnings and upbeat PMI data.

Next week’s economic calendar is highlighted by global trade data with import/export and national account figures scheduled for the United States, Germany, Japan, and China. Domestically, look for producer and consumer inflation data on Wednesday and Thursday, respectively; small business optimism and wholesale data (sales and inventories) are also noteworthy. Elsewhere, European data to monitor include industrial production figures out of Germany, France, and the United Kingdom; while the docket in Asia includes the minutes from the last Bank of Japan monetary policy meeting, and China’s consumer and producer inflation for April.

 

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