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Market Summary

Trade tensions remain front of mind after driving U.S. equities to further losses this past week. For the week, the Dow was down for the fourth straight week losing -0.6%, while the S&P 500 dropped -0.7% and the Nasdaq Composite lurched down -1.2%. U.S. Treasury bond prices finished mixed, with the two-year yield rising to 2.21% and the 10-year yield declining to 2.39%, further flattening the yield curve as long-term growth expectations have come under pressure.

The odds of a near-term trade deal between the U.S. and China are looking increasingly slim just weeks after trade officials from both nations suggested a deal was near at hand. Following the most recent round of tariff increases volleyed between the two nations, President Trump signed an executive order last week banning two Chinese telecommunication companies, Huawei and ZTE, from selling products in the U.S. and from receiving supplies from U.S. companies, citing national security concerns, though some U.S. companies will be granted a temporary 90-day exception on the ban. China has vowed to respond in-kind, though it isn’t yet clear specifically how they will choose to retaliate.

The severity of the economic effects of the tariffs have been widely debated as several industries have seen sharp jumps in cost pressure but the overall lid on broad inflation has yet to really be tested. However, the economic impact is also felt in other more indirect forms from declining business sentiment and delayed capital investment due to the uncertainty caused by the dispute. Negotiations will continue next month in Japan at the G20 summit, but both sides remain far apart on issues such as forced technology transfer and intellectual property protections.

Despite the escalation with China, investors did gain some reprieve on geopolitical tensions this last week as the White House announced a six-month postponement on auto tariffs as well as an agreement with Canada and Mexico to remove steel and aluminum tariffs.

Meanwhile in the U.K., six weeks of talks between Prime Minister Theresa May and the opposition Labor Party came to a close without an agreement. On Thursday, May agreed to set a timetable for her departure as prime minister in the first week of June, while political rival Boris Johnson threw his hat in the ring for leadership of the Conservative Party.

Economic Highlights:

Retail Sales: Volatility in monthly retail sales growth continued in April with month-over-month growth swinging from a 1.7% increase in March to a -0.2% decline. The sporadic spending behavior has been a challenge to the Federal Reserve in setting monetary policy as consumption is a major driver of U.S. economic growth.

Industrial Production: U.S. industrial production slumped below expectations in April, coming in at 0.5% drop compared to March versus expectations for 0.1% growth. Manufacturing output was a key driver in the decline, suggesting that subdued global demand is becoming an increasing headwind.

US Economy – The Week Ahead

Tuesday, 5/21/2019

  • Existing Home Sales – Consensus Estimate: 5,350K (2.7% MoM), Prior Month: 5,210K (-4.9% MoM)

Wednesday, 5/22/2019

  • Federal Open Market Committee (FOMC) April meeting minutes released

Thursday, 5/23/2019

  • Initial Jobless Claims – Consensus Estimate: 215,000 (1.4% WoW), Prior Week: 212,000 (-7.0% WoW)
  • New Home Sales – Consensus Estimate: 680K (-1.7% MoM), Prior Month: 692K (4.5% MoM)

Friday, 5/24/2019

  • Durable Goods Orders Month-over-Month Growth (Preliminary) – Consensus Estimate: -2.0%, Prior Month: 2.8%
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