The Market Today

TODAY’S CALENDAR

Contentious G-7 Kicks off Today with Headline Risk for the Markets: The June Bloomberg Survey of Economists is set for release at 7:45 a.m. CT.  The survey should show a slight upgrade in short-term GDP growth projections and a largely unchanged interest rate outlook.  At 9:00 a.m. CT, the April Wholesale Inventories report will be finalized.  Inventories are expected to see a boost in 2Q but the initial release showed inventories unchanged at the wholesale level.  In geopolitical news, the G-7 meeting kicks off today in Quebec.  President Trump announced yesterday that he will depart the meeting early.  The meeting is expected to be contentious after the White House announced tariffs on some of the U.S.’s staunchest allies.  The President is correct to say that other countries have a multitude of overt and not-so-overt barriers to U.S. imports. It is also correct that the U.S. has in place its own set of protectionist policies aiding certain U.S. industries.  Headlines out of Quebec over the next 24 hours could certainly move the markets.

 

TRADING ACTIVITY

Yesterday – Treasurys Rallied as Losses in Tech Shares Kept Stocks Capped: Technology-related stocks turned lower Thursday, ending a four-day win streak for the Nasdaq that included three new record-high closes. The Dow and S&P 500, shielded somewhat from the tech rout by gains in other sectors, fared more favorably. The Dow gained 0.4% while the S&P ended the day essentially flat. Tech was the clear underperformer within the S&P, dropping more than 1%, while greater-than-1% gains for energy and telecoms helped absorb the blow. Energy companies rallied 1.6% on the back of stronger oil prices. Against the quiet economic calendar and relative stability in non-tech U.S. equities, a rally in Treasurys stood out. The 2-year yield fell 2.9 bps to 2.49% while the 10-year yield dropped 5.1 bps to 2.92%. Earlier, the 10-year yield had fallen as low as 2.88%. In a search for the why behind the 9 bps intraday plunge, multiple reports said traders were pointing to a continued slump by the Brazilian Real as the latest cause for concern about the health of emerging economies. One index tracking Brazilian stocks fell around 3% and the iShares MSCI emerging markets ETF dropped 1.4% on the day. However, considering the severity of the move, the immediate snapback, and the lack of response by other assets, the move also had an air of a technical response to potentially offsides positioning.

 

Overnight – Apple Report Stirs Risk-off Tone and Bid for Sovereigns As Investors Look to Summit in Quebec: Global equities are weaker Friday as investors turn their attention to what is expected to be a testy G-7 summit. Trade relations, which have been put under a microscope lately and caused some market consternation, are expected to be the primary point on the agenda. There has already been some bitter back and forth between leaders of the U.S. and France and Canada before the meeting even begins. Asian and European equities both fell overnight and U.S. index futures, led by the Nasdaq, were comfortably in negative territory. And while that helped create a bid for certain safe haven currencies, Treasurys have been less effected. The 2-year yield was up 0.8 bps with the 10-year yield 0.4 bps higher. Activity for European sovereigns was more active, with Germany’s 10-year yield down 5.1 bps. The timing of the biggest move lower in the safe sovereign yields coincided with a steep drop in Nasdaq futures on a report Apple had told suppliers to prepare for a 20% cut in certain iPhone parts orders.

 

NOTEWORTHY NEWS

U.S. Households Now Worth More $100,000,000,000,000: The rate of wealth accumulation for U.S. households slowed in the first quarter but was still enough to push the net worth of U.S. households above $100 trillion for the first time. Net worth of households rose just over $1 trillion in the first quarter, less than half of the fourth quarter’s gain, with the increase almost evenly split between revaluations of financial and non-financial assets. Despite losses in the equities portfolio, financial assets rose $510.6 billion in the first quarter. And the rapid pace of appreciation of home prices drove real estate prices up just under $500B, which accounted for most of the increase in nonfinancial assets. On the liability side, home mortgages rose $34 billion, leaving consumers with 59.7% equity in their real estate holdings, the highest since December 2005. Refreshing the calculation with the Q1 figures, net worth as a percentage of disposable income slipped a couple of percentage points to 683%, which represented the second highest on record.

 

Consumer Credit Grew at Its Slowest Rate Since September: Non-mortgage consumer credit grew a smaller-than-expected $9.2 billion in April, or at 2.9% annualized rate, while March’s total outstanding balance was revised up $656 million. April’s monthly change marked the slowest rate of growth since last September and the second weakest since 2011. After contracting in March for the first time since 2013, revolving credit, which is primarily made up of credit card borrowings, accounted for $2.3 billion of the monthly increase. The non-revolving categories, primarily debts for autos and student loans, accounted for the remaining $7 billion, also the smallest monthly increase since last September.