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Weekly Update

Market Summary

Equity markets fell further this past week to close out a tough month of May with the S&P 500 delivering its worst May return (-6.6%) in 7 years and second worst since 1966, according to FactSet. Additional trade concerns drove much of the negative sentiment after President Trump unexpectedly announced on Thursday that tariffs will be imposed on imports from Mexico in an attempt to curb illegal immigration. For the week, the Dow Jones dropped -2.9%, while the S&P 500 and Nasdaq Composite sank -2.6% and -2.4%, respectively.

Meanwhile, U.S. Treasury yields continued to tumble precipitously this past week with the 10-year yield falling to a 20-month low of 2.14%. According to CME Group, the market is pricing in a 96% probability of at least one 0.25% cut to the Fed Funds rate in 2019 and a 77% likelihood for more than one rate cut as the economic growth outlook has diminished.

Per President Trump’s Thursday evening announcement, the U.S. will levy 5% tariffs on all Mexican imports beginning on June 10th and increasing by 5% each month up to 25%, until “the Illegal Immigration problem is remedied”. This continues the tariff wars around the world with China retaliating over the weekend with its own tariffs against $60 billion worth of American products and a headline in a leading Chinese newspaper suggesting export restrictions to the U.S. of rare earth minerals that are key inputs in a wide range of products, from electric cars to cellphones. However, China has signaled willingness to return to negotiations and reiterated its key conditions that the U.S. must remove all additional tariffs on Chinese exports, Chinese purchases of US goods should be realistic, and the text of a final agreement should be balanced.

Investors will be on the look-out for additional developments on trade disputes on several fronts in the week ahead and will sift through updated employment data later this week for an updated picture on the state of the U.S. economy.

Economic Highlights:

Inflation: The U.S. Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, increased 1.6% year-over-year in April after rising 1.5% in March. Consumer spending, adjusted for inflation, remained unchanged in April. Cooling consumer spending growth could pressure the outlook for U.S. economic growth and future inflation as consumption accounts for almost 70% of U.S. GDP.

Oil: Crude oil prices continued their sharp descent this past week with WTI crude oil falling -8.4% as global inventory remains above expectations and there are concerns that slowing global growth may negatively pressure demand.

US Economy – The Week Ahead

Tuesday, 6/4/2019

  • Durable Goods Orders Month-over-Month Growth (Final) – Consensus Estimate: -2.1%, Prior Month: 1.7%

Wednesday, 6/5/2019

  • ADP Employment Survey – Consensus Estimate: 176,500, Prior Month 275,000
  • ISM Non-Manufacturing PMI – Consensus Estimate: 55.8 (0.5% MoM), Prior Month: 55.5 (-1.1% MoM)

Thursday, 6/6/2019

  • Initial Jobless Claims – Consensus Estimate: 217,500 (1.2% WoW), Prior Week: 215,000 (1.4% WoW)
  • U.S. Productivity Growth Quarter-over-Quarter (Final) – Consensus Estimate: 3.6%, Prior Quarter: 1.3%

Friday, 6/7/2019

  • Hourly Earnings Growth Year-over-Year – Consensus Estimate: 3.2%, Prior Month: 3.2%
  • U.S. Unemployment Rate – Consensus Estimate: 3.6%, Prior Month: 3.6%
  • Nonfarm Payrolls Added – Consensus Estimate: 180,000, Prior Month: 263,000
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