US: S&P 500 Index -0.9%, Dow -2.0%, Nasdaq -0.7%
Europe: STOXX Europe 600 -1.1%, German DAX -3.3%, France CAC 40 -2.1%, U.K. FTSE 100 +0.6%
Asia: Japan Nikkei -1.5%, China Shanghai Composite -4.4%, Korea KOSPI -2.0%
Global/Regional: MSCI ACWI -1.4% MSCI EM -3.0% MSCI EAFE -1.8%
Rates/Commodities: 10-Year Treasury yield -2 basis points to 2.90%, WTI crude oil +6.4%, COMEX gold -0.5%
With top-tier central bank meetings in the rearview mirror, the spotlight returned to global trade this week, though OPEC announcements that drove oil prices sharply higher and big banks’ stress test results stole the show later in the week. Multiple drivers made for a volatile ride in global equity markets, ultimately leaving major indexes in the red.
Drilling down, trade tensions reignited Monday following President Trump’s call for an additional $200 billion of tariffs on goods imported from China, which Chinese officials rebuked with threats of a comprehensive retaliation that included potentially targeting specific Dow components, which helped the index sustain a losing streak that ultimately lasted eight sessions. Weakness in emerging markets was widespread, underpinned by China’s Shanghai Composite, which tumbled 3.8% following the announcement to close below the 3,000 level for the first time since September 2016 and hover just north of bear market territory. Investors’ anxiety abated somewhat by the end of the week when media outlets reported that the U.S. was contemplating returning to the negotiating table ahead of the July 6 implementation of previously announced tariffs.
Elsewhere, late-week news that the first round of stress test results from large U.S. financial institutions—those deemed systemically important—failed to spur gains in the broader sector despite all 35 banks passing. “The tests remain very tough,” noted LPL Research Chief Investment Strategist John Lynch, “but increased flexibility under new bank regulatory leadership, coupled with the generally strong economic and profit backdrop, likely means favorable results in the second round of tests, followed by dividend increases and share repurchases after the June 28 announcement.” He further noted that “though this year has been a struggle so far for the financials sector, we continue to expect the sector to benefit from an eventual easing of yield curve pressures.” The energy sector also garnered attention late in the week after an announcement that OPEC and its allies would boost supply by a less-than-expected 600k barrels per day, coupled with comments from the Saudi oil minister that demand in the second half of the year could likely outpace supply by more than 1.5 million barrels, actually triggered a 5% spike in oil prices on Friday.
Looking ahead, items to monitor in the U.S. include consumer confidence, spending and income data. Inflation reports headline the overseas docket with releases out of Germany, Italy, France, the Eurozone, and Japan. See all of the important economic data due out next week in our Weekly Economic Calendar.
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