The Market Today
Eurozone Elections Show Growing Angst
by Craig Dismuke, Dudley Carter
First Look at Trade-Talk Breakdown on Consumer Confidence: There are two reports on home prices scheduled for 8:00 a.m. CT, the FHFA Home Price Index and the S&P CoreLogic Home Price Index. Both are expected to show year-over-year gains in home prices continuing to slow. Perhaps more interestingly, May’s Consumer Confidence report from the Conference Board is scheduled for 9:00 a.m., and will be the first consumer report to include surveys taken after trade negotiations broke down. Economists expect confidence to tick up from 129.2 to 130.0. At 9:30 a.m., the Dallas Fed regional report on manufacturing activity is expected to improve from April’s reading.
Overnight – A Hesitant Return from a Long Weekend for U.S. Assets: Global equities have moved in different directions overnight and Treasury yields deepened an early decline from the open of trading in Europe. Most equities indices in Asia rose Tuesday while mainland European bourses ticked lower and U.S. futures pointed to a soft return from a holiday break. President Trump spent the weekend in Japan on an official state visit where the U.S.-Japanese trade relationship was discussed. President Trump said, “Trade-wise, I think we will be announcing some things probably in August that will be very good for both countries.” He also used the opportunity to address the recent steps backward in negotiations with China. “I think they probably wish they made the deal that they had on the table before they tried to renegotiate it, ..They would like to make a deal. We’re not ready to make a deal,” Trump said. Politics were the focus in Europe following weekend EU parliamentary elections gave pro-EU parties, which kept a majority of the lawmaking body, a wake-up call about growing disenchantment with the status quo. The two main parties in the U.K. finished in third (Labour) and fifth (Conservative, PM May’s ruling party) place. Support for Germany’s ruling coalition, which includes Chancellor Merkel’s CDU party, dwindled. In France, President Macron’s En Marche slipped to second behind the nationalist party of Marine Le Pen. And Italy’s League party, half of the current coalition government, grew its share of support in the country, likely emboldening Deputy Premier Salvini in his pushback against EU budget rules. Italian yields popped higher and the FTSE MIB lagged after Salvini said, “All my energies will be devoted to changing these old and obsolete [fiscal] rules.” The EU is currently contemplating a fine against Italy for its fiscal measurement falling outside of EU budget rules. On the economic front, German consumer confidence inched down to a two-year low while overall economic confidence in the Eurozone recovered slightly from a 31-month low. Around 7:15 a.m. CT, the 2-year Treasury yield was 1.5 bps lower at 2.15% and the 10-year yield had shed 2.8 bps to 2.29%, the lowest since September 2017.
ICYMI – May 24, 2019 Weekly Market Recap: Trade tensions rolled on last week and combined with new signs of slower economic activity to pull the 10-year yield down to its lowest level since October 2017. Several global companies said they were suspending providing services and products to Huawei in response to U.S. government actions two weeks ago. Those developments led to worries that trade tensions could veer farther from the path of an agreement that appeared the most likely scenario just three weeks ago. The White House did grant temporary, 90-day exceptions to the Huawei restrictions Monday afternoon, but subsequent reports said the administration was considering adding five additional Chinese companies to the same blacklist. China responded by saying the U.S. must “correct their wrong practices” if trade talks are to resume. The resultant fears that a prolonged trade battle could enhance a global slowdown were given fodder by more disappointing economic data. The three-month average of the Chicago Fed’s National Activity Index hit a three-year low, existing home sales fell unexpectedly, and business investment expectations took a hit as new core orders posted their weakest YoY growth rate since January 2017. April’s new home sales were reported better than expected on Thursday, but overwhelmed by weaker-than-expected PMIs from Europe and the U.S. American manufacturing posted its weakest expansion since 2009 and services slowed to its lowest level since February 2016. The amped-up trade tensions and bleak economic data will likely draw the attention of the Fed, which noted Wednesday in the May Minutes that policy would likely remain patient “for some time.” Click here to view the full recap.