Market Update | May 24, 2018

Macro View

Daily Insights

  • More trade ups and downs. President Trump ordered an investigation into whether auto and truck imports weaken the U.S. economy and threaten national security, which sparked a response from a Chinese official suggesting the move represented an abuse of trade rules. Though likely another part of the administration’s negotiation strategy, it may lead to new tariffs on foreign cars. This follows Trump’s statement that trade negotiations with China were not going well, even as China plans to cut import duties on many U.S. products on July 1. Trade tensions may continue to make it hard for U.S. stocks to make much headway in the near term as the administration’s strategy remains bold and somewhat unpredictable; however, we continue to view these moves as negotiation tactics.
  • Delayed Brexit? The latest Brexit headlines suggest a much longer-than-anticipated transition period, potentially extending through 2023. As we noted in our royal wedding-themed Brexit blog, this separation is much more complicated than most “leave” voters anticipated. Down the road, another referendum that leads to “remain” is still possible. What is clear today is that reversing many decades of integration will be very difficult.
  • Fed minutes follow-up. Markets reacted positively to the minutes from the Federal Reserve’s (Fed) most recent policy meeting as they generally confirmed expectations that the 2% inflation goal was not a line in the sand that triggered more aggressive rate hikes once crossed. Part of the conversation also addressed the timing of removing language in the policy statements that indicated the Fed’s overall stance would remain accommodative; however, the overall market reaction was positive with equities finishing at the day’s highs, whereas fed fund futures’ implied likelihood of a fourth rate hike in 2018 dropped sharply from 53% to 28%.
  • U.S. economy still chugging along. Recently released Markit Purchasing Managers’ Index data showed both the U.S. services and manufacturing sectors continued to expand last month. Manufacturing activity registered its highest reading since September 2014, with manufacturers intending to boost production in the near term. Backlogs of work on the services side hit levels not seen since March 2015, though new business ticked modestly lower. Input costs in both sectors rose at the fastest pace in almost five years as inflationary pressures continue to mount, but overall the data remain solidly in expansionary territory and support our expectations for economic growth in the 2.75-3.0% range this year.

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Index data obtained via FactSet


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