Stocks opened solidly higher on hopeful trade headlines. Several headlines are attracting bids from stock traders this morning. First, reports that Republican lawmakers may block Trump’s tariffs on Mexico. And second, China said it hopes differences can be solved through dialog. Increasing odds of a Federal Reserve (Fed) rate cut this summer may also be helping, along with ebbing fears that the tech giants could be broken up.
Manufacturing activity worsens. U.S. manufacturing continued to deteriorate last month as global demand softened amid trade tensions. The Institute for Supply Management’s Purchasing Managers’ Index (PMI) fell to 52.1 in May, the lowest level since October 2016. Final Markit PMI data showed manufacturing activity fell to 50.5, less than a point away from contractionary territory (below 50). Overseas, the manufacturing environment looks even more dire. A J.P. Morgan/Markit measure of global PMIs fell into contractionary territory last month, and sits at its lowest level since 2012.
10-year yield’s rapid decline. Long-term Treasury yields‘ rapid decline has been one of the most baffling market developments of 2019. The 10-year yield fell 38 basis points (0.38%) in May, its biggest monthly decline in more than four years. Even though there are signs of weakness in manufacturing data, the bulk of economic fundamentals looks solid. Based on this, we don’t think yields’ recent decline is simply an indictment of future economic growth. We’ll dig into the recent drop in yields more in today’s LPL Research blog post.
Lack of stress. We have yet to see significant stress in other fixed income indicators, which is an encouraging sign. The spread between the 2-year and 10-year yields has yet to invert this cycle, and corporate debt spreads have been relatively contained during recent stock-market volatility, reflecting investors’ views that corporate balance sheets remain strong. We’d expect to see more deterioration across credit markets if a recession were imminent.
- 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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