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Weekly Update

Market Summary

Accommodative messaging from the U.S. Federal Reserve helped drive a surge in equity markets last week that drove the major U.S. equity indices back toward their all-time highs last reached around the end of September last year. For the week, the S&P 500 gained 2.2%, while the Dow Jones and Nasdaq Composite indices climbed 2.4% and 3.0%, respectively. Meanwhile, the 10-year Treasury yield continued to slide further down on the declining inflation and economic growth outlook, even briefly dipping below 2.0% on Thursday, but closed out the week at 2.06%.

The results of last Wednesday’s Federal Reserve meeting generally came in as anticipated with no change to the current Federal funds rate and the Committee’s communication of a stronger case for easing monetary policy near term. However, some market participants were surprised by the number of Fed officials that indicated expectations for a rate cut this year as almost half projected at least a 0.25% rate cut this year and 7 of the 17 officials projected a 0.5% rate cut by year end.

In last week’s equity surge, energy stocks lead the way on the back of a 9.3% spike in the price of WTI crude oil prices following the downing of a U.S. surveillance drone by Iran and a narrowly averted retaliatory missile strike that was called off by the Trump Administration. However, the U.S. has moved to increase economic sanctions against Iran to push the country to accept limits to its nuclear program.

Looking ahead, market participants are focused on the upcoming meeting between President Trump and Chinese President Xi at the G20 Summit in Japan that begins on Friday to see whether any headway can be made between the U.S. and China over trade issues. The talks are not expected to resolve major disagreements, but rather they are generally seen as an effort to re-engage negotiations and set new ground rules. Meanwhile, mounting concerns over the usage of Chinese technology in U.S. telecommunication networks and the potential implementation by the U.S. of proposed tariffs on $300 billion more of Chinese goods have increased the sense of urgency for progress in the trade dispute.

Economic Highlights:

Manufacturing: Several U.S. manufacturing indicators, including the Philadelphia Fed Manufacturing index and the IHS Markit Manufacturing Purchasing Managers Index (PMI), continued to tumble last week, falling below expectations as declining international demand and trade tensions further dampen the outlook for the sector.

Foreign Exchange: The U.S. dollar index fell -1.4% last week as falling long-term bond yields and growing expectations of cuts to the Federal funds rate decreased the attractiveness of U.S. fixed income securities relative to those of other developed nations.

US Economy – The Week Ahead

Tuesday, 6/25/2019

  • S&P/Case-Shiller Home Price Index Year-over-Year Growth – Consensus Estimate: 2.5%, Prior Month: 2.7%
  • New Home Sales – Consensus Estimate: 674K (0.1% MoM), Prior Month: 673K (-6.9% MoM)

Wednesday, 6/26/2019

  • Durable Goods Orders Month-over-Month Growth (Preliminary) – Consensus Estimate: 0.0%, Prior Month: -2.1%
  • Wholesale Inventories Month-over-Month Growth (Preliminary) – Consensus Estimate: 0.4%, Prior Month: 0.8%

Thursday, 6/27/2019

  • Initial Jobless Claims – Consensus Estimate: 218,000 (0.9% WoW), Prior Week: 216,000 (-2.7% WoW)
  • U.S. First Quarter 2019 GDP Growth Year-over-Year (Final) – Consensus Estimate: 3.2% (3.1% QoQ), Prior Quarter: 3.0% (2.2% QoQ)

Friday, 6/28/2019

  • Personal Consumption Expenditures (PCE) Index Year-over-Year Growth – Consensus Estimate: 1.4%, Prior Month: 1.5%
  • University of Michigan Consumer Sentiment Survey (Final) – Consensus Estimate: 97.9 (-0.5% MoM), Prior Month: 98.4 (4.9% MoM)
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