Stocks in a Holding Pattern Ahead of G-20
US: S&P 500 Index -0.3%, Dow -0.7%, Nasdaq -0.3%
Europe: STOXX Europe 600 +0.03%, German DAX +0.5% France CAC 40 +0.2%, U.K. FTSE 100 +0.1%
Asia: Japan Nikkei +0.1%, China Shanghai Composite -0.8%, Korea KOSPI +0.2%
Rates/Commodities: 10-Year Treasury yield -6 basis points to 2.00%, WTI crude oil +3.6%, COMEX gold: +0.1%
Markets were modestly lower this week, but U.S. equities have consolidated just below all-time highs as market participants paused in anticipation of the G20 Summit in Osaka, Japan, this weekend.
While investors are not anticipating an all-conclusive deal at the meeting, consensus expectations continue to revolve around a truce in which the United States will delay tariffs on the final group of $300 billion-plus of Chinese imports with the two sides poised to agree to restart negotiations. Elsewhere, the Federal Reserve (Fed) released the results of its Comprehensive Capital Analysis and Review of the 18 major U.S. banks, which is part of the regulatory reform following the 2008 financial crisis. The Fed noted that the banks have strong capital levels and virtually all are now meeting supervisory expectations for capital planning, which then buoyed the financial sector on Friday. On the macro front, U.S. consumer spending increased moderately in May, but inflation pressure remains benign and below the central bank’s inflation target of 2% with core personal consumption expenditures (Fed’s core inflation gauge) rising 0.2% month over month and 1.6% year over year. Even with a relatively positive economic backdrop, a July rate cut by the Fed still looks like a foregone conclusion, with the decision pending as the G20 meeting lingers into the weekend.
Internationally, the Bank of Japan reiterated its accommodative approach to monetary policy, noting that risks affecting the global economy are having an outsized effect on Japanese exports and manufacturing. As noted in our recently released 2019 Midyear Outlook publication, we continue to expect emerging markets (EM) to lead global economic growth, as structural concerns in developed international markets have dampened growth prospects. On EM, LPL Chief Investment Strategist John Lynch noted, “India’s gross domestic product (GDP) growth is expected to pace growth in emerging economies. And while we wait for a potential U.S.-China trade agreement, Beijing is implementing stimulus to support the Chinese economy, with the possibility of more to come. Population growth, improved flexibility in production, economic momentum, and valuations all point to maintaining an allocation to emerging market equities.”
The week ahead is shortened by the observance of Independence Day in the United States, however, the June jobs report including wage growth and the unemployment rate is on the economic docket. International economic calendars are highlighted by a host of Purchasing Manager’s Index (PMI) data, with Germany, Italy, France, and the composite Eurozone PMIs scheduled to be released.
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