Out of the woods yet? U.S. equities are drifting lower this morning, but remain well off the week’s lows following the S&P 500 Index’s 2.4% drop on Monday. While the 2800 level has offered technical support, we want to be mindful that stocks only pulled back about 4.5% on a closing basis. This is well short of the average year’s 14% peak-to-trough correction. Going forward, we will be looking for improvements in breadth, as well as a positive response from longer-dated Treasury yields which remain near their lowest levels this year.
China is selling U.S. Treasuries. As the trade dispute heats up, the U.S. Treasury reported that China owned $1.12 trillion of U.S. Treasury securities, a 22-month low. What isn’t as widely reported though is that global demand remains strong, with foreign ownership of U.S. debt hitting a record high last month. Additionally, Japan, the second largest owner of U.S. debt behind China, has quietly upped their holdings each of the past five months. We take a closer look at this interesting development later today on the LPL Research blog.
China media increases trade rhetoric. Multiple reports from China state media blamed U.S. for heightened trade tensions, pushing back against accusations of force technology transfer and reiterated China’s determination to protect interests. Additionally, China has let the yuan weaken 3% in the past month on increased U.S.-China trade tensions potentially resulting in People’s Bank of China (PBOC) initiating monetary policy tools to prevent any further weakness. While yuan weakness can reduce some of the effects of the tariff increase, dampened confidence in the currency is at odds with China’s long-term ambitions. Ultimately, we believe this is a short-term solution and that China is more inclined to reach a trade deal with the U.S. In other trade news, the U.S. has officially postponed the decision for imposing tariffs on imported cars and parts for six months.
NEW Street View video. LPL Financial Research Chief Investment Strategist John Lynch comments on the effect of the China tariff battles on the recent bout of market volatility. Watch and share the video now.
- Leading Index (Apr)
- University of Michigan Sentiment Index (Preliminary May)
- Eurozone CPI Report (Apr)
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