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Weekly Update

Market Summary

Equity markets may be in for a turbulent week ahead following an announcement from President Trump that he plans to impose additional tariffs on China if a trade deal is not reached by the end of the week. On Sunday, the President stated via Twitter that negotiations are advancing too slowly and that he would increase tariffs on $200 billion in Chinese goods from 10% to 25% on Friday and would “shortly” thereafter impose levies on the remaining tranche of $325 billion of Chinese imports. Initially following the announcement, China reportedly considered cancelling this week’s trade talks, though several sources have recently stated that the Chinese delegation is still planning to attend, at least in part.

The escalation in trade tensions followed a relatively mixed week for U.S. equities with the major indices finishing about even after a rebound on Friday driven by strong employment data helped offset a mid-week slide following the Federal Reserve meeting and disappointing manufacturing data. For the week, the S&P 500 and NASDAQ gained 0.2% to end around their all-time highs while the Dow fell -0.1%.

Although the results of last week’s Federal Open Market Committee meeting came in as expected with no change in interest rates, Fed Chairman Jerome Powell’s comments following the meeting led to a negative reaction in equity and bond markets. The depressed sentiment resulted from his description of recent inflation weakness as “transient,” which reduced some investors’ optimism that the Federal Reserve would feel the need to cut rates this year in order to loosen financial conditions and stimulate a slowing economy.

On Friday, the U.S. Labor Department reported a 263,000 surge in payroll employment in April, well above the consensus estimate of 180,000. The report added optimism that domestic demand growth has bounced back from a weak start to the year. Wage growth, however, wasn’t as strong as expected with average hourly earnings rising 3.2% year-over-year compared to the consensus forecast of 3.3%. Perhaps the most dramatic number from Friday’s report though is the 3.6% unemployment rate for April, which is the lowest since December 1969, resulting from a drop in labor force participation.

Economic Highlights:

Oil: As of last week, U.S. waivers on purchasing Iranian oil expired for eight countries, including Iran's main oil customer, China. Some expect the move to pressure oil prices upward due to a reduction in supply. Officials project that the Iran's oil exports might drop as low as 400,000 barrels a month by this summer from previous levels of 2.5 million barrels a day before the U.S. exited the nuclear deal.

Manufacturing: The ISM manufacturing index recorded a 52.8 reading in April, the lowest level since October 2016 (albeit still expansionary being above 50). The ISM service sector reading also came in below expectations for April with a 55.5 reading compared to the consensus forecast for a 57.0 reading, which in combination with the manufacturing reading could point to slower economic growth in the second quarter.

US Economy – The Week Ahead

Tuesday, 5/7/2019

  • Job Openings & Labor Turnover Survey – Consensus: 7,350K (3.7% MoM), Prior Month: 7,087K (-7.1% MoM)

Wednesday, 5/8/2019

  • No Data

Thursday, 5/9/2019

  • Initial Jobless Claims – Consensus Estimate: 220,000 (-4.3% WoW), Prior Week: 230,000 (0% WoW)
  • U.S. Producer Price Index (PPI) Year-Over-Year – Consensus Estimate: 2.3%, Prior Month: 2.2%

Friday, 5/10/2019

  • U.S. Consumer Price Index (CPI) Year-Over-Year – Consensus Estimate: 2.1%, Prior Month: 1.9%
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