Market Summary
Equity markets were mixed for the week as the Dow Jones Industrial average slid -0.9%, the S&P 500 ended even, and the tech-heavy Nasdaq rose 1.3%. Notable events early in the week, including President Trump’s meeting with Kim Jung Un of North Korea and the Federal Reserve policy meeting, were met with minimal market reaction as they generally fell in line with investor expectations. However, the majority of stocks dipped on Friday following escalation of the U.S.-China trade dispute. After months of thinly veiled threats, the U.S. finally began implementation of 25% tariffs against $50 billion worth of Chinese goods, which China quickly retaliated against in-kind with tariffs against $50 billion of U.S. goods. The moves marked the latest rub in relations between the world’s two biggest economies, which has kept investors and stock analysts on their guard over the last few months. The energy and industrial sectors were the largest drag on returns last week due to a further slide in oil prices (Brent crude oil prices fell by -3.9%) and their significant international exposures.
Investors seemed to gloss over last Tuesday’s meeting between President Trump and Kim Jong-un, as the two leaders signed a document that included the following points: Establishing new US-North Korean relations, building a lasting and stable peace regime, reaffirming commitments to work toward complete denuclearization, and recovering POW/MIA remains. U.S. sanctions will remain in effect for the time and American forces will not be reduced on the Korean peninsula.
At its June policy meeting, the Fed hiked its benchmark interest rate for the second time this year by a quarter of a percentage point to a range of between 1.75% and 2%. New projections also showed the central bank leaning toward four increases in 2018, rather than the three discussed in March, signaling a more aggressive effort to prevent the economy from overheating.
Investors are also coming to terms with central banks' strategy to gradually leave behind a decade of unprecedented monetary stimulus. The European Central Bank outlined plans to end its massive stimulus program by the end of this year, but keep interest rates steady until next summer. Nonetheless, President Mario Draghi made it clear that all upcoming decisions would be determined by economic data.
The coming week will be relatively light on economic data but will provide some insight on the health of the U.S. housing market as well as the U.S. current account, an important indicator of the international balance of trade and income.
Economic Highlights
- Inflation: The US Consumer Price Index increased 0.17% in May, while the US Producer Price Index growth outpaced expectations rising 0.50% month over month, reflecting higher energy prices. Softer prices in shelter and healthcare services helped to moderate the increase in consumer prices.
- Consumer Sentiment: June’s preliminary reading of the University of Michigan survey rose to 99.3, above both the prior month result of 98.0 and consensus expectations of 98.5 for the month, driven partly by a resurgence in strength for US economic indicators.
US Economy - The Week Ahead
Tuesday, 6/19/2018
Housing Starts – Consensus Estimate: 1.295 Million (+0.6% MoM), Prior Month: 1.287 Million (-3.7% MoM)
Wednesday, 6/20/2018
Existing Home Sales – Consensus Estimate: 5.57 Million (2.0% MoM), Prior Month: 5.46 Million (-2.5% MoM)
Current Account 1Q 2018– Consensus Estimate: -$129B (-0.6% QoQ), Prior Month: -$128.2B (-26.3% QoQ)
Thursday, 6/21/2018
Initial Jobless Claims – Consensus Estimate: 225,000 (3.2% WoW), Prior Week: 218,000 (-1.8% WoW)
FHFA Home Price Index – Consensus Estimate: +0.3% MoM, Prior Month: +0.1% MoM
Leading Economic Index – Consensus Estimate: +0.4% MoM, Prior Month: +0.4% MoM
Friday, 6/22/2018
No Data
