Market Update | June 5, 2018

Maro View

Daily Insights

  • Italian politics dictated market action last week. Yieldson Italian government debt spiked last week as investors grew nervous that the country’s populist government would attempt to pull Italy from the European Union. Yields in economies that investors perceived as more secure, like the U.S. and Germany, fell dramatically as investors flocked to safe havens. Although the market may have overreacted in the short term, the episode did well to highlight country-specific risk and the diversification benefits high-quality fixed income can add to a portfolio, as U.S. Treasuriesperformed well amid the global, risk-off sentiment. In this week’s Bond Market Perspectives, due out later today, we take a deeper dive into the market’s reaction to Italy and its implications for investors.
  • Treasury futures remain at historic net short levels.The positioning indicates market participants believe yields will move higher. However, this has been an important counter-cyclical indicator, as profits (or losses) on these positions can lead to buying Treasury futures to close them out, leading to a decline in interest rates over the short term. The U.S. 10-year yield advantage to Germany also hit new highs, but this may persist, or even increase, should downside risk in Europe become more pronounced, which could further hamper the European Central Bank’s ability to raise interest rates. However, all else equal, we still believe that foreign demand could be a factor that keeps Treasury yields at lower levels than they may otherwise be.
  • Eurozone sees continued weak data. The Eurozone services PMI dropped to 53.8 in May, from 54.7 in April. Although growth remained solid, the rate of expansion hit an 18-month low. This continues a recent string of disappointing economic data out of Europe, although it is worth noting that the UK services PMI hit a three-month high. For more on our thoughts on Europe, be sure to read this week’s Weekly Market Commentary.
  • More new highs across the board. Yesterday saw continued strength under the surface. In fact, the Russell 2000Russell Microcap, technology sector, and Nasdaq all closed at new all-time highs. Not to be outdone, various advance/decline lines made new highs as well including: the S&P MidCap, Nasdaq 100, NYSE, NYSE common stock only, S&P 100S&P small cap, and S&P 500. We continue to be quite impressed with overall market breadth and the health of the bull market.
  • Trump presidency hits 500-day mark. Depending on who you ask, President Trump has probably been either a complete success or utter failure over his first 500 days in office, but what does the market think? We’ll crunch the numbers today on the LPL Research blog.

Monitoring the Week Ahead

Click Here for our detailed Weekly Economic Calendar


  • Markit Svcs PMI (May)
  • Italy: Markit Svcs PMI (May)
  • France: Markit Svcs PMI (May)
  • Germany: Markit Svcs PMI (May)
  • Eurozone: Markit Svcs PMI (May)
  • UK: Markit Svcs PMI (May)


  • Trade Balance (Apr)
  • China: Foreign Reserves (May)


  • Eurozone: GDP (Q1)
  • Japan: Current Account Balance (Apr)
  • Japan: GDP (Q1)
  • China: Trade Balance (Mar)
  • China: Imports & Exports (Mar)


  • Wholesale Inventories (Apr)
  • Germany: Industrial Production (Apr)
  • France: Industrial Production (Apr)



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