Weekly Market Drivers | LPL Financial Research

Second Quarter Kicks Off With Flowers, Not Showers.

US: S&P 500 Index +2.1%, Dow +1.9%, Nasdaq +2.7%
Europe: STOXX Europe 600 +2.4%, German DAX +4.2% France CAC 40 +2.4%, U.K. FTSE 100 +1.7%
Asia: Japan Nikkei +2.8%, China Shanghai Composite +5.0% Korea KOSPI +3.2%
Rates/Commodities: 10-Year Treasury yield +9 basis points to 2.49%, WTI crude oil +3.2%, COMEX gold: -0.0%

Global equities got off to a strong start in the second quarter, so far continuing the seasonal trend we’ve seen in April in recent years. Renewed U.S.-China trade optimism, (relatively) upbeat economic data, and some easing of the yield curve inversion provided support.

A week of intense negotiations between top U.S. and Chinese officials renewed investors’ hopes that a formal deal will be completed sooner rather than later (or not at all). Though key sticking points remain around intellectual property and enforcement, President Trump indicated that a final deal—assuming it comes to fruition—will come together over roughly the next six weeks.

Amid the flow of trade-related headlines, some positive top-tier economic data provided additional market support. Early-week figures showed an unexpected rebound in Chinese manufacturing activity, which suggests government stimulus measures are starting to work. That was followed-up with a reading on services sector activity that came in at its highest level in in over a year. Meanwhile, eurozone services data showed improvement in the region’s four largest economies. Stocks capped off the week with gains after U.S. nonfarm payrolls showed the economy added 196,000 jobs in March, easily topping consensus forecasts and the prior month’s 20,000 figure.

As investors’ risk appetite continued this week, the Treasury yield curve steepened, quieting recent chatter about a potential recession. In fact, one of the more prominent measures that recently turned negative, the spread between 10-year and 3-month yields, turned positive. On the yield curve, LPL Chief Investment Strategist John Lynch said, “We’re monitoring the shape of the curve, but we aren’t concerned about a potential recession yet, as the spread between the 3-month and 10-year yields has been much more predictive of a recession at -50 basis points (-0.50%).”

Next week will mark the beginning of earnings season, as several of the major banks are set to report. The economic docket will bring U.S. consumer and producer prices, along with the minutes from the most recent Federal Reserve meeting. Abroad, trade figures out of China and Germany, which has seen a recent slump in exports, are among the data to monitor. Track these and other important events on our Weekly Global Economic & Policy Calendar.

 

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