The Market Today

Record Recovery and Expansion Milestone Met as New Tariffs to Be Tabled, Talks to Resume Amid Additional Signs of Slowing Growth


by Craig Dismuke, Dudley Carter

THIS WEEK’S CALENDAR

The Current Recovery and Expansion Becomes the Longest on Record: The current economic expansion turns ten years old today, making it the longest recovery and expansion in modern history. However, it does so at a time of significant economic uncertainty as a result of trade frictions between the U.S. and China, and concerns that the uncertainty emanating from that situation places year eleven in peril.


Today’s Calendar will Included a Key Manufacturing Report: This week’s calendar is short on market hours, but long on potentially market-moving economic reports. Markets will close early Wednesday and remain closed on Thursday for the U.S. Independence Day holiday. But there are several important reports both before and after the Fourth of July break. In addition to the weekend trade truce between the U.S. and China (more below), markets will be interested in the ISM’s Manufacturing PMI for June, which will be released at 9 a.m. CT and is expected to have pulled back a new low since before the 2016 presidential election. Similar reports overnight showed manufacturing activity in China and across Europe was weaker than expected in June (more below). Also at 9 a.m., data from the U.S. Census Bureau is expected to show construction spending was flat for a second month in May.


The Rest of the Week: The ISM’s Non-manufacturing PMI, which tracks activity across the U.S. services sector, will be released on Wednesday and is also expected to have cooled in June. There are several other important reports scheduled for before the break, including June’s auto sales activity on Tuesday and May’s trade balance data on Wednesday. However, the bigger news will be the BLS nonfarm payroll report on Friday. Wednesday’s ADP report will give an early indication of how strongly hiring recovered in June, and is expected to report private payroll growth of 140k. Friday’s official data is expected to show total hiring rebounded 160k, unemployment held at 3.6%, and earnings grew a solid 0.3%.


TRADING ACTIVITY

Overnight – New Tariffs to Be Tabled as Talks Resume Amid Additional Signs of Slowing Growth: The stalemate in U.S.-China trade negotiations has been broken after Presidents Trump and Xi agreed that their teams would resume discussions in search of a trade agreement. All new tariffs will be tabled while those discussions are ongoing, including those currently under consideration by the U.S. on the remaining balance of approximately $300B of goods not already drawn into the trade dispute. The broad U.S. restrictions on China’s Huawei will become more surgical, only targeting goods specifically posing a national security threat which should allow a large swath of U.S. tech exports to the company to resume. China, for its part, will increase purchases of U.S. agricultural products, according to U.S. officials. The agreement to resume trade talks removes the near-term risk of an imminent breakdown in the situation and has lifted spirits globally Monday, with stocks rising and safer assets such as the yen and gold moving lower. Global bond yields also opened higher, but more moderately so, as the prolonged uncertainty could continue to weigh on growth. There were more signs of the global growth slowdown over the weekend, as two separate PMIs showed China’s manufacturing economy contracted in June and a round of surveys tracking activity in Europe broadly missed expectations. The Eurozone’s manufacturing PMI was revised down 0.2 points to 47.6, marking a fifth consecutive month of contraction. The disappointment dragged yields off their highs, leaving the Treasury curve just marginally higher across the curve. The 2-year yield was 0.4 bps higher at 1.76% just after 7 a.m. CT while the 10-year yield added 1.4 bps to 2.02%.


NOTEWORTHY NEWS

ICYMI – June 28, 2019 Weekly Market Recap: Yields and stocks both declined as the economic outlook remained cloudy, geopolitical tensions heated up, and mixed news reports sowed confusion about the U.S.-China trade situation ahead of the highly-anticipated G20 meeting. The third estimate of 1Q GDP was unchanged at 3.1% as better business investment offset weaker consumption. Capital goods data showed positive momentum in business spending continued in April and May and personal income and spending were both steady. However, four additional regional Fed surveys and the MNI Chicago PMI signaled activity slowed in June and the Conference Board’s consumer confidence index crumbled to its lowest level since September 2017. The Fed’s preferred inflation measure was firm in May, keeping the YoY rate unchanged at 1.6%. But the focus was on geopolitics and trade. The U.S. announced new sanction on Iran, an action the Iranian government said meant the “permanent closure” of diplomacy. There were multiple reports on trade that sowed confusion ahead of the weekend meeting between Presidents Trump and Xi and helped keep a lid on stock prices and Treasury yields. The 10-year Treasury yield closed just above 2.00% and despite a weekly decline, the S&P 500 posted its best June since 1955 and strongest first-half annual performance since 1997. Click here to view the full recap.


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