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Market in a Minute: May 13–17, 2019

Saturday, May 18, 2019

by Rich and Sheila Jamison

Executive Summary

Equities lost ground amid the breakdown in US/China trade talks. China’s retaliation to our recently imposed tariffs sent the market plunging on Monday. Stocks fought back … to an even week by lunchtime on Friday. Subsequent news of the talks’ breakdown sent it lower again.

The 10-year US Treasury note yield continued to fall, dropping to 2.39% from 2.46% a week ago. WTI crude oil rose to $62.73/barrel on increased Middle East tensions. Despite the market’s seesawing, volatility (by the CBOE’s Volatility Index, VIX) eased down to 15.8 from 16.0 last Friday.

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Details

Domestically

Expectations of near-term resolution of the US/China trade conflict now look to a more drawn-out process. China retaliated Monday to our most recent round of tariffs on their goods. It will hike existing 5-10 percent tariffs on $60 billion of imported US goods to a 5-25 percent range, effective June 1. President Trump offered soothing words early in the week, calling the fissure between the world's two largest economies as "a little squabble." He said he expects a fruitful meeting with President, Xi at the G20 summit in June. He added he has not decided whether to impose a 25% tariff on the balance of China's exports to the US.

Wednesday, Trump issued an executive order to protect our technology from “foreign adversaries” that pose a national security threat. He banned US purchases of telecommunications equipment from China's Huawei Technologies. At the same time, our Commerce Department restricted US companies from selling or transferring technology to the tech giant. China responded in a front-page commentary in the state-run People's Daily newspaper that the US must show sincerity if it is to hold meaningful trade talks. China cast the US as a bully and pushed back on our claims of China's malfeasance on trade.

There were, however, two bits of encouraging trade news … both revealed midweek and confirmed on Friday. We will delay levying tariffs on European autos and auto parts for up to six months and tariffs on steel and aluminum from Mexico and Canada will be removed within 48 hours.  

There was a mixed bag of economic data. April retail sales were off after March’s big upside surprise. Industrial production fell by 0.5%. Meanwhile, April housing starts picked up, initial jobless claims remained historically low and consumer sentiment hit its highest level in 15 years. Surveys in two US Federal Reserve districts were more upbeat, with The Empire State and Philadelphia Fed surveys both exceeding expectations.

Globally

Just days after we announced putting more US forces in the Persian Gulf region, there were attacks on four oil tankers in the gulf and on a Saudi oil pipeline. The US blames Iran for the tanker attacks. Iranian-backed Houthi rebels are blamed for targeting the Saudi pipeline. The Wall Street Journal reported that the US and Iran may have misread each other. It said that US intelligence agencies think that Iran's leaders believed the US was preparing to strike Iran. That prompted their preparations for possible counterstrikes. The US interpreted the Iranian preparations as offensive threats against US forces. President Trump reportedly has said that he does not want tensions between the US and Iran to lead to war, mitigating concerns somewhat. In spite of it all, crude prices were only slightly higher, contained by a cut in the International Energy Agency's oil demand forecast.

UK’s Brexit continues as additional people emerge to challenge Prime Minister May’s Conservative Party leadership in Thursday's elections.

Chinese data was uniformly weak despite its significant economic stimulus. April’s retail sales grew at their slowest pace in 16 years. Both industrial production and fixed asset investment were below expectations.

While populist parties are expected to gain representation in next week's European parliamentary elections, they are expected to fall well short of a majority. Support for the EU remains relatively high. However, various national political parties could be important in their respective jurisdictions. For example, if Italy's League performs well in elections, it could be emboldened to dismantle the coalition it has formed with the Five Star Movement in order to form a right-of-center coalition.


Sources:
The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; BBC News; The Associated Press; Reuters.com; Crain’s New York Business; MFS research; NYSE; NASDAQ; Dorsey-Wright Associates; NYMEX.com; CNBC’s Power Lunch & Squawk Box programs; Investing.com; Markit.com; the New York Times; Standardandpoors.com; Djindexes.com; 247wallstreet.com; MarketWatch.com; Morningstar.com; Thomsonreuters.com; the Financial Times.com; Briefing.com; BusinessWeek.com; Dol.gov; Fxstreet.com; Streetinsider.com; Ycharts.com;
 
The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.
Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities, whenever mentioned, are for illustrative purposes only and may not be relied upon as investment advice.
All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.
Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.
Past performance is no guarantee of future results.

 

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