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  • June 17, 2019

Week in Review

Week Ending: Friday, May 14, 2019

Recap & Commentary

Major US stock indexes ended the week where they started amid mostly quiet trading, which represented a cooling off of sorts after the previous weeks’ big rally. On Monday, stocks pushed higher on news of a deal between the US and Mexico to avert tariffs. While the market remains short of the deal’s finer details, the communication of an “agreement” was viewed favorably. Additionally, the market benefited from an M&A tailwind after Salesforce.com, a leading enterprise cloud computing company, announced plans to acquire data analytics provider, Tableau Software for $15 billion in an all-stock deal. Also, industrial giant United Technologies reported that it would purchase defense contractor Raytheon in another all-stock transaction. By Friday, however, US stocks gave back the gains after chipmaker Broadcom cited that the ongoing trade dispute between the US and China, as well as constraints of exports to Huawei Technologies, were dampening demand. As a result, the company cut its revenue forecast for the year by 8%.

Emerging markets stocks rebounded from near four-month lows as investors grew more confident that China would step up stimulus measures to bolster the economy from the impact of US tariffs. These measures came in the form of special purpose bonds sold by local governments to finance the construction of key infrastructure projects. Despite the much-needed support, however, EM markets will likely remain volatile until the trade war is officially resolved.

Economic Commentary

InflationThe Consumer Price Index (CPI) rose 0.1% at both the headline and core levels in May. Falling gasoline prices suppressed the headline measure, while another decline in used car prices and moderating residential rents contained core prices. Y/Y, CPI has softened to a 1.8% annualized rate, down from 2.0% last month. Also, core CPI slipped to 2.0% annualized, the least since February 2018. Similarly, The Producer Price Index (PPI) firmed in May, but only slightly, up just 0.1% and 0.2%, respectively, at the headline and core levels. Y/Y, PPI figures continue to trend at a stable 2.0% - 2.5%.

Retail Sales bounced back in May with both the headline index and core control group categories rising 0.5%. Y/Y, retail sales have advanced 3.6%, which represents a modest acceleration over the past few months.

Industrial Production rebounded 0.4% in May, the most in six months, and above the consensus of 0.1%. Y/Y, headline industrial production rose 2.0%, an improvement over the previous month, but less than half the pace from last fall.

Small Business Optimism showed no deterioration despite a month of trade tensions. In fact, sentiment strengthened for a second straight month.

Consumer Sentiment softened in June due primarily to a sharp fall in long-term inflation expectations. While reported underlying economic data may be mixed year-to-date, overall confidence remains stable to improving.

Of Note

Gold prices peaked at $1,362 an ounce on Friday, before settling at $1,340, the highest level in 14 months. Gold has climbed in June amid concerns that slowing economic growth could trigger an interest rate cut by the Federal Reserve, potentially raising inflation risks that can often lead investors to bid up prices for gold.

Market Indices Week of 6/14

S&P 500                          0.0%

Small Caps                     0.5%

Intl. Developed              0.2%

Intl. Emerging                1.5%

Commodities                  0.9%

U.S. Bond Market           0.1%

10-Year Treas. Yield        2.08%

US Dollar                          1.0%

WTI Oil ($/bl)                     $53

Gold ($/oz)                     $1,340

The Week Ahead

  • Leading Indicators
  • Housing Market Index
  • Existing Home Sales
  • Housing Starts
  • Jobless Claims

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