U.S. futures point to slightly lower open as trade jitters continue. Asian markets were higher overnight, helped by emerging markets, but European markets are point lower at mid-day, and S&P 500 Index futures are signaling a downward nudge at open for equities with continued pressure on the 10-year Treasury yield. The Trump administration opened another small front in the trade war this week, removing India’s designation as a developing nation. China also amplified its trade rhetoric over the weekend, contributing to a negative overall tone. The next positive trade catalysts may be talks with Mexico over the recent announcement of new tariffs, with the focus on the June-28-29 G-20 Summit in Japan for a potential break in the impasse with China.
Four-week losing streak. We’re now a month into the current bout of stock-market volatility. The S&P 500 fell 2.5% for its fourth straight weekly drop, the longest losing streak since October 2014. Four-week losing streaks have been rare in this bull market: the S&P 500 has only reached that point in six previous selloffs. Luckily, that fourth week of losses has proven to be the turning point for these pullbacks. The S&P 500 has only made it to five straight down weeks once in this bull market – in June 2011.
Baffling bond market. The bond market has been baffling recently. Last week, the 10-Treasury yield slid 20 basis points (0.20%), its biggest weekly drop in over four years, to close at a 20-month low. The bond market’s excessive pessimism has commanded Wall Street’s attention, and we’ve seen several interpretations of Treasuries’ cautious undertones. In this week’s Weekly Economic Commentary, we’ll sort through a few of them, and provide our thoughts on why long-term yields could be sliding.
Should stock investors be concerned about the signals coming from the bond market? Trade tensions were the biggest reason why stocks suffered their first down month of 2019 in May, but worrisome signals from the bond market contributed. In this week’s Weekly Market Commentary and on today’s LPL Research blog, we discuss what the bond market’s signals mean for the stock market. While we expect rates to end the year solidly above current levels, until we get some good news on the trade front, rates may remain stubbornly low and potentially weigh on stock returns.
Consumer sentiment still elevated but trade starting to weigh in. A strong preliminary University of Michigan consumer sentiment survey for May was revised downward at the end of the month, with spontaneous mentions of tariffs more than doubling from the mid-month survey. One-year inflation expectations were also revised higher as consumers started to brace for the potential impact of tariffs. Big picture, though, consumers are still responding positively for now to solid economic growth and low unemployment.
Fed gathering in Chicago on Tuesday and Wednesday to discuss policy tools. Inflation will be in focus, amidst increasing evidence that global central banks’ attempts to influence inflation via monetary policy have been largely ineffective as large scale forces influencing inflation, such as technology and demographics, change. Any discussions of more flexible inflation targeting will garner plenty of press attention, but implementation is likely to be a year or more away.
- Markit US Manufacturing PMI (May)
- ISM Manufactruring PMI (May)
- Markit/BME Germany Manufacturing PMI (May)
- Markit Eurozone Manufacturing PMI (May)
- Durable Goods Orders (MoM Apr)
- Eurozone Unemploymeny Rate (Apr)
- Eurozone CPI Report (Preliminary May)
- Caixin China Composite PMI (May)
- Caixin China Services PMI (May)
- ADP Employment Report (May)
- Markit US Services PMI (May)
- ISM Non-Manufacturing Index (May)
- Federal Reserve Beige Book (June)
- Eurozone PPI Report (Apr)
- Eurozone Retail Sales (Apr)
- Nonfarm Productivity (QoQ Q1)
- Initial Jobless Claims (June 1)
- Eurozone Employment (Q1)
- Eurozone GDP Report (Q1)
- European Central Bank Rate Decision (June)
- Nonfarm Payrolls Report (May)
- Unemployment Rate (May)
- Average Hourly Earnings (YoY May)
- Japan Leading Index (Preliminary Apr)
- Germany Industrial Production (Apr)
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