Market Update | June 1, 2018

Macro View

Daily Insights

  • Trump levies tariffs, trading partners quick to respond. With negotiations making little headway, the Trump administration was disinclined to grant further exemptions for the European Union (EU) to avoid new U.S. tariffs on steel (25%) and aluminum (10%), which were first announced in March but delayed in hopes that terms between the two trading partners could be amended amicably. And with NAFTA negotiations “taking longer than we had hoped” according to U.S. Trade Secretary Wilbur Ross, Canada and Mexico will also be subject to the tariffs; though he also noted that the U.S. remains “quite willing and indeed eager” to continue discussions. Retaliation from the three countries was swift as the EU announced new import taxes on hundreds of U.S. products, while Mexico made similar moves it said would remain in effect until the U.S. backtracked, and Canada indicated it would match the tariffs dollar-for-dollar. However, with the overall impact to the U.S. and global economy bordering on negligible, the new tariffs, as they stand today, are likely another negotiating tactic to help sway three of the U.S.’ largest trading partners to better terms.
  • More signs of healthy labor market. The economy added 223,000 jobs in May, ahead of consensus expectations of 190,000 and accelerating from April’s downwardly revised 159,000. The unemployment rate also ticked down to 3.8%, a positive surprise and its lowest level since 2000. A healthy labor market continues to be one of the strengths of the economy and should continue to support consumer spending. We also got a positive surprise on wages, with average hourly earnings rising 0.3% month over month versus expectations of +0.2%. Signs of building wage pressure are starting to appear, but right now wage growth is running at a healthy but manageable 2.7% year over year.
  • Italy agrees to form a new government. The Five Star and League reached an agreement on key positions to form a new government. The big win here is this will avoid snap elections, which many feared would eventually lead to Italy leaving the EU.
  • Time for a June Swoon? The month of June has been tricky for stocks historically, and over the past 10 years only the month of January sees a worse average return for the S&P 500 index. Could we be in store for another dip this June? We take a closer look at this question on the LPL Research blog here.

Monitoring the Week Ahead

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  • Unemployment Rate (May)
  • Markit Mfg. PMI (May)
  • Italy: Markit ADACI Mfg. PMI (May)
  • France: Markit Mfg. PMI (May)
  • Germany: Markit Mfg. PMI (May)
  • UK: Markit Mfg. PMI (May)
  • Eurozone: Markit Mfg. PMI (May)
  • Italy: GDP (Q1)



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Index data obtained via FactSet


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