Market Summary
U.S. equities edged down this past week amid continued escalation in the trade conflict and growing concerns of a slowdown in global economic activity, partially exacerbated by the recent trade issues. The Dow and S&P 500 each lost 1.3% this past week while the NASDAQ was down 2.4% on heightened volatility in the information technology sector. The Trump Administration refuted reports that it would be cracking down on Chinese investment in U.S. technology companies, which had sent equity markets down early last week, but the administration shows no signs of backing down from its hawkish trade stance overall. An area of key concern is whether or not President Trump will levy auto tariffs against Europe, and the potential retaliation stemming from such action.
Brussels states that if the U.S. goes ahead with punitive tariffs against EU car imports, the European Commission will follow suit with tariffs worth almost $300B - about 19% of U.S. goods exported in 2017. The measures risk pushing the global economy into a full-scale trade war, and potentially harming employment in the U.S. auto sector, which accounts for more than 4 million jobs. Concerns of such a trade war are believed to be weighing on global business sentiment and investment activity.
The Chinese renminbi dropped 3.3% against the dollar in June, suffering its largest ever monthly fall and raising concerns that China is prepared to use currency devaluation as a weapon in an escalating U.S. trade war. Analysts say that so far the move looks more like market forces than an act of currency war, according to the Financial Times, but they warn that continued weakness could further increase tensions.
Looking ahead to this week, markets will be closing early on Tuesday and will be closed all day on Wednesday for Independence Day, but there will be some additional data on U.S. manufacturing and employment coming out.
Economic Highlights
- Growth: First quarter US GDP growth was revised down to 2.0% year-over-year, from its initial reading of 2.2%. First quarter growth was somewhat stifled by the weakest consumer spending in nearly five years, but growth and consumer spending appears to have since regained momentum.
- Manufacturing: The US ISM Manufacturing Purchasing Managers Index (PMI) posted a surprise gain rising to 60.2 in June, which was above the prior month reading of 58.7 and expectations of 58.1, a positive indication of manufacturing momentum.
- Commodities: Oil prices continued their rise this past week as WTI and Brent crude oil prices reached up to $74.15 (a 8.1% weekly gain) and $79.44 per barrel (a 5.1% gain), respectively. However, less than a week after OPEC's decision to increase crude supplies, President Trump surprised oil markets on Saturday by announcing a new agreement with the Saudis to increase output by up to 2 million barrels per day in order to compensate for supply shortages from Iran and Venezuela. Increasing production would put downward pressure on oil prices that have risen sharply this year.
US Economy - The Week Ahead
Tuesday, 7/3/2018
Factory Orders (Month-over-Month) – Consensus Estimate: -0.1%, Prior Quarter: -0.8%
Durable Goods Orders (Month-over-Month) – Consensus Estimate: -0.6%, Prior Quarter: -0.57%
Wednesday, 7/4/2018
Markets Closed – Independence Day
Thursday, 7/5/2018
Initial Jobless Claims – Consensus Estimate: 225,000 (-0.9% WoW), Prior Week: 227,000 (4.1% WoW)
ISM Non-Manufacturing PMI – Consensus Estimate: 58.2 (-0.7% MoM), Prior Month: 58.6 (-0.3% MoM)
Friday, 7/6/2018
US Unemployment – Consensus Estimate: 3.8%, Prior Month: 3.8%
International Trade Balance – Consensus Estimate: -$43.7 billion (5.4% MoM), Prior Month: -$46.2 billion (19.8% MoM)
