Market Summary
Trade tensions remain front and center after driving a volatile week for global equity markets. US equities ended broadly lower with the Dow Jones, S&P 500, and NASDAQ losing 2.03%, 0.88%, and 0.7%, respectively, while global equities lost 0.88% based on the MSCI World Index. The trade conflict has escalated from a bilateral dispute with China to a broader multifront confrontation with less clarity on a potential path to near-term reconciliation. The European Union has joined China in vowing to oppose trade protectionism in a rebuke to recent U.S. policies and has implemented retaliatory tariffs on $3.3 billion of American products in response to U.S. tariffs on aluminum and steel imports.
The Trump Administration plans to take a further step this week as, according to the Wall Street Journal, it is drafting twin initiatives against China that will be unveiled later this week. The first of the initiatives would block companies with at least 25% Chinese ownership from buying companies involved in "industrially significant technology." The second initiative would involve enhancing export controls to block additional technology exports to Beijing. The rationale for these actions is based on concerns of intellectual property infringement occurring in China. Members of the information technology sector, which was down about 1.3% this past week, will be tracking the proposal closely due to the implications of limiting their exports.
In an effort to stimulate its economy against the effects of the trade conflict, China's central bank is cutting the amount of cash some lenders must hold as reserves, which should free up significant liquidity. China’s Heng Seng equity index has had a -3.7% return so far this month as about 20% of its GDP comes from exports of goods and services.
In light of the rising concerns of potentially slowing economic growth due to trade tensions and restrictive monetary policies, defensive, value-oriented sectors like consumer staples and utilities have had some relative outperformance in recent weeks. These two sectors were the only sectors in the green in early trading this week as some investors have shifted equity exposure out of cyclically sensitive industries and into industries with relatively stable and defensive outlooks.
Economic Highlights
- Housing: Existing home sales fell 3% year-over-year in May, the fourth month of declines so far in 2018. Despite the continued U.S. economic expansion and higher consumer discretionary budgets from tax reform, home sales have fallen off due to a tightening supply driving up home prices in addition to rising mortgage rates.
- Commodities: Oil prices climbed higher this past week on news that OPEC agreed to increase production but at a lower rate than anticipated. US WTI crude oil price per barrel rose over 5% and helped to lift energy sector stocks that returned 1.52% last week.
US Economy - The Week Ahead
Tuesday, 6/26/2018
No Data
Wednesday, 6/27/2018
Pending Home Sales Month-over-Month – Consensus Estimate: 1.0%, Prior Month: -1.3%
Durable Goods Orders Month-over-Month (Preliminary) – Consensus Estimate: -0.85%, Prior Month: -1.6%
Thursday, 6/28/2018
Initial Jobless Claims – Consensus Estimate: 221,000 (1.4% WoW), Prior Week: 218,000 (-1.4% WoW)
US Real GDP (1Q 2018) – Consensus Estimate: 2.3%, Prior Quarter: 2.2%
Friday, 6/29/2018
Personal Consumption Expenditures (PCE) Index Year-over-Year – Consensus Estimate: 2.2%, Prior Month: 2.0%
University of Michigan Consumer Sentiment Survey (Final) – Consensus Estimate: 99.3 (0.0% MoM), Prior Month: 98.8 (-2.6% MoM)
S&P/Case-Shiller Home Price Index – Consensus Estimate: 0.4% MoM, Prior Month: 0.53% MoM
