US: S&P 500 Index +0.5%, Dow -0.5%, Nasdaq +1.6%
Europe: STOXX Europe 600 -1.1%, German DAX -1.7%, France CAC 40 -1.4%, U.K. FTSE 100 -0.7%
Asia: Japan Nikkei -1.2%, China Shanghai Composite -2.1%, Korea KOSPI -0.9%
Rates/Commodities: 10-Year Treasury yield -3 basis points to 2.90%, WTI crude oil +3.1%, COMEX gold +0.5%
Traders needed to keep their arms and legs inside the car at all times this week as the roller coaster that was Italy took global markets for a few loops. Early-week reports suggested that a political stalemate, which had stymied efforts to instill a new government since elections took place in early March, would result in a fresh set of elections later this year that many feared would amount to a referendum on the country’s membership in the European Union (EU) and could leave it on the brink of abandoning the Eurozone and its shared currency. As the week progressed, however, government officials were able to come to terms and form a coalition government, soothing investor anxiety, for now at least. “Though political uncertainty in Italy is nothing new, this latest bout of volatility highlights some of the structural challenges Europe faces that may constrain growth and upend financial markets periodically,” noted Chief Investment Strategist John Lynch.
Meanwhile, trade tensions flared up between the U.S. and several of its key trading partners when President Trump announced that tariffs on steel and aluminum, which were first reported in March but delayed as the countries worked toward more mutually beneficial terms, were to be implemented on June 1. Add to all of that a string of top-tier economic data out of the U.S., including a better-than-expected nonfarm payrolls report, and the Personal Consumption Expenditures Index (Fed’s preferred measure of inflation), both of which buoyed expectations for the Federal Reserve to raise interest rates when it meets June 12-13.
When the dust settled, most major foreign stock indexes in Europe and Asia were down 1% or more, while U.S. equities held up relatively well with the S&P 500 Index advancing near half a percent. Elsewhere, Treasuries endured one their rockiest stretches in recent memory as the yield on the benchmark 10-year note tumbled 15 basis points on Tuesday as investors fled to safety before rebounding to end the week just three basis points (0.03%) lower at 2.90%.
Looking ahead, economic data releases in the U.S. are relatively light, though durable goods and factory orders, and wholesale inventories will provide insight on the state of the manufacturing industry; Markit Services Purchasing Managers’ Index (PMI) and the ISM Non-Manufacturing Index on the services side. The overseas docket is also highlighted by PMI releases out of the Eurozone, Germany, Japan, and China among others. First quarter Gross Domestic Product figures out of the Eurozone and Japan, as well as Chinese consumer and producer inflation will be on investors’ radars.
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