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  • May 28, 2019

Week in Review

Week Ending: Friday, May 24, 2019

Recap & Commentary

Trade tensions continued to weigh on global equity markets, resulting in the S&P 500 declining for a third consecutive week. Less than a month ago, investors widely believed that a final trade agreement was imminent. Now, investors are concerned about a prolonged standoff between the U.S. and China.

Reflecting those concerns, and how they might impact future economic growth, interest rates and commodity prices tumbled. The 10-year Treasury yield, which just a month ago stood at 2.50%, ended the week at 2.33%, just above its lowest level since 2017, but below the yield of the three-month Treasury bill, resulting in another yield curve inversion. Oil prices shed nearly 7%, the largest weekly decline since December.

Minutes from the Fed’s most recent FOMC meeting were seen as disappointing, especially in light of recent market volatility. According to the minutes, “members observed that a patient approach to determining future adjustments to the target range for the federal funds rate would likely remain appropriate for some time.” The apparent willingness of the Fed to maintain rates at current levels was at odds with market expectations for a rate cut (or two), before year end. Current market expectations for a rate cut by September stand at ~50%, while expectations for a rate cut by December stand at ~75%. Worth noting is the fact that the Fed’s meeting concluded prior to President Trump’s decision to increase tariffs on $200B of Chinese goods to 25%.

Economic Commentary

Housing—New home sales came in below expectations, falling -6.9% in April to a 673K-unit pace. However, data for March was revised upward, and sales are up 7.0% versus a year ago alongside lower mortgage rates. Existing home sales for the same month also declined, down -0.4% to a 5.1 million-unit pace. Despite lower mortgage rates, resales have fallen in five of the past six months and are down -4.4% year-over-year.

Durable Goods Orders fell -2.1% in April, marking the second decline for the measure in the past three months. The biggest driver for the soft print was weakness in the volatile aircraft category, which fell -25.1%. Nondefense capital goods orders ex-aircraft, also referred to as core business orders which are a proxy for CapEx, slipped -0.9% in April, its first decline this year. On a year-over-year basis, both durable goods orders and core orders moderated to 0.4% and 2.5%, respectively, the slowest rates since early 2017. This reflects a notable deceleration in 2019 factory activity.

Jobless Claims—At 211K, initial unemployment claims remained low in the May 18 week. However, the print was slightly ahead of April figures, which will likely limit expectations for the May Employment Situation Report. The 4-week average at 22.3K was also lower week-over-week, an encouraging sign in isolation, but the data point also showed a sizeable 18.8K rise from a week ago.

Of Note

After failing multiple times to secure the necessary votes to pass her Brexit plan, UK PM Theresa May announced her resignation so as to allow a new PM to guide Britain through the Brexit process.

Market Indices Week of 05/28

S&P 500                           -1.2%

Small Caps                      -1.4%

Intl. Developed               -0.7%

Intl. Emerging                -1.0%

Commodities                  -1.2%

U.S. Bond Market            0.3%

10-Year Treas. Yield         2.33%

US Dollar                          -0.4%

WTI Oil ($/bl)                      $59

Gold ($/oz)                     $1,283

The Week Ahead

  • GDP
  • Corporate Profit
  • Int'l Trade in Goods
  • Consumer Confidence
  • Consumer Sentiment

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