Market Update: Tuesday, May 15, 2018

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Daily Insights

  • The impact of a 3% 10-year yield. The 10-year Treasury yield continues to hover near 3%, but we feel this level is more important psychologically than it is for the bottom line of investors or borrowers. A 3% yield on a high-quality 10-year Treasury (or a nearly 2.6% yield on a 2-year Treasury for that matter) is a move in the right direction for savers and may help suitable investors meet their income targets with less reliance on low-quality debt. However, yields remain low relative to history, and even though corporate debt levels have increased over the past few years, stronger earnings mean interest coverage ratios–measure of companies’ ability to pay the interest expense on their debt–remain strong in aggregate. We dive into more detail on what 3% yields mean for investors and corporate borrowers in this week’s Bond Market Perspectives, due out later today.

  • Retail sales pick up in April. Consumer demand accelerated to start the second quarter as April retail sales rose 0.3% versus March and 4.7% from the prior year. The increase was broad based with 9 of 13 categories showing growth; apparel (+0.8%) logged the biggest gain. The data are a welcome sign that the largest segment of the U.S. economy remains healthy after some weaker-than-expected readings in the first quarter; and with previously reported figures for March revised up to 0.8% from an initial 0.6% increase, unemployment levels at historic lows, and the benefits of recent tax reform flowing through to consumers, the data reinforce our expectations for gross domestic product growth in the 2.75-3.0% range.

  • Oil bounce. WTI crude oil has been very strong recently, with the commodity at its highest level since late 2014. Will the higher prices hurt consumers, and will it lead to eventual higher inflation? Today on the LPL Research blog we take a closer look at the impact of this important question.

  • Trade goes round and round. If you miss a day, you miss a lot in regards to trade. The Wall Street Journal reported yesterday that the U.S. and China had agreed to reprieve sanctions on Chinese telecom company ZTE in exchange for China removing tariffs on U.S. agricultural products. However, the U.S. ambassador to China said no deals had been made. Last, NAFTA issues are still swirling as the deadline inches closer. Reuters is reporting that Presidents Trump and Trudeau are looking at bringing talks to a “prompt conclusion” soon.

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Click Here for our detailed Weekly Economic Calendar

Tuesday

  • Retail Sales (Apr)
  • Eurozone: GDP (Q1)
  • Germany: GDP (Q1)
  • France: CPI (Apr)
  • Eurozone: Industrial Production (Mar)
  • Japan: GDP (Q1)

Wednesday

  • Housing Starts & Building Permits (Apr)
  • Germany: CPI (Apr)
  • Eurozone: CPI (Apr)
  • Italy: CPI (Apr)

Thursday

Friday

  • Germany: PPI (Apr)

 

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

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Index data obtained via FactSet

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