Weekly Update 5/25/2018 – U.S. – Foreign Relations in Focus

USS&P 500 Index +0.3%, Dow +0.2%, Nasdaq +1.1%
EuropeSTOXX Europe 600 -0.9%, German DAX -1.1%, France CAC 40 -1.3%, U.K. FTSE 100 -0.8%
Asia: Japan Nikkei -2.1%, China Shanghai Composite -1.6%, Korea KOSPI  +0.0%
Rates/Commodities: 10-Year Treasury yield -8 basis points to 2.99%, WTI crude oil -5.2%, COMEX gold +0.9%

U.S. equities recovered most of last week’s losses, thanks in large part to early-week advances spurred by reports of thawing trade tensions between the U.S. and China. Day-to-day movements in major indexes were choppy, however, amid subsequent reports that the U.S. is failing to secure meaningful concessions in its efforts to balance trade between the two nations. Adding to uncertainty was an announcement from the Commerce Department that it would investigate the national security implications of auto imports (with an eye to possible tariffs) given the auto industry has historically been a key source of technological innovation, which could be negatively impacted should the industry decline. “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” noted LPL Chief Investment Strategist John Lynch.

Gains were buoyed mid-week by the minutes from the Federal Reserve’s (Fed) most recent policy meeting, which generally confirmed expectations that the Fed wouldn’t necessarily move to raise rates more aggressively should inflation top its 2% target. But markets limped into the finish after sentiment took a hit following a formal announcement Thursday from President Trump that he would not meet with North Korea’s Kim Jung Un after a series of aggressive comments towards several U.S. officials; though Korea reiterated its willingness to meet next month as planned.

Major foreign indexes fared worse as overseas investors turned risk averse amid the geopolitical uncertainties noted above, coupled with some lackluster economic releases; notably disappointing preliminary Purchasing Managers’ Index data out of several Eurozone countries, as well as Japan, which saw manufacturing activity hit nine-months lows.

Looking ahead, Friday’s monthly nonfarm payrolls report headlines U.S. data releases, but personal consumption expenditures (the Fed’s preferred inflation measure), consumer confidence, and a series of housing data that include pending home sales will also be notable next week. Overseas, employment figures are due out in the Eurozone, Germany, and Japan. Other notable data include final Purchasing Managers’ Index (PMI), consumer and economic confidence indicators, and inflation in the Eurozone; while manufacturing data for China and Japan is due out.


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