The Market Today
Stocks Gain with Trade Tariffs in the Rearview
by Craig Dismuke, Dudley Carter
Vining Sparks Economic Outlook Webinar, Thursday July 12 – Vining Sparks will host our 3Q Economic Outlook Webinar on Thursday with a focus on 1) how strong the economy currently is, 2) the phenomenon of the flattening yield curve, and 3) trends from previous yield curve inversions. To register, click here.
THIS WEEK’S CALENDAR
This week’s economic calendar bring a few important reports including tomorrow’s Small Business Confidence report and the May JOLTs Job Openings report. Small business remains near its highest level on record and job openings are at their highest level on record. Thursday will bring the June CPI report which is expected to show last year’s weaker reports continue to roll off, resulting in an artificially-inflated headline index. Headline CPI is expected to increase to 2.9% YoY. This index should stick close to 3.0% for the remainder of the year, on base-effects primarily, before pulling back early next year.
As for today, the only report is the May Consumer Credit data.
Overnight – Stocks Gain with Trade Tariffs in the Rearview: Global investors have added risk back into their portfolios to start the week despite the U.S. and China moving forward with the first round of tariffs last Friday (more below). The actual implementation of the tariffs had been anticipated for weeks, allowing for a textbook case of sell the rumor, buy the news. Chinese markets, which had been the hardest hit in the lead up to those tariffs becoming effective, rallied more than 2.5% overnight to lead a strong session across the Asian-Pacific. That set the stage for a firmer tone in Europe, where the Stoxx Europe 600 is higher by 0.4%, and additional gains for U.S. futures. U.S. equities look set to extend last Friday’s rally that sent the major U.S. indexes to their highest levels in two weeks. The preference for riskier assets is also playing out in the sovereign debt and world currency markets. The Treasury curve was higher and modestly steeper, with the 2-year yield up 2.0 bps and the 10-year yield 2.6 bps higher. The Dollar is down for a fifth consecutive session and at its lowest level in almost a month.
ICYMI – July 6, 2018 Weekly Market Recap: The Treasury curve continued to flatten last week as investors balanced solid U.S. economic data with the U.S.-China import tariffs. The two ISM reports signaled activity picked up more than expected in June across both the manufacturing and non-manufacturing sectors of the U.S. economy and the latest BLS data showed the U.S. labor market remained hot. The U.S. economy added 213k jobs in June, 18k more than were expected, and the prior two months were revised up a total of 37k. Despite the strong payroll growth, the unemployment rate rose nearly 0.3% to 4.048% on a surge in people entering the labor force. The participation rate added 0.2% to 62.9% as 601k people joined the labor force. That may help explain why wage growth remained subdued at 2.7% and will likely extend the full-employment debate at the Fed. The other main event last week were the U.S.-China tariffs on $34 billion of imported goods (both ways) that took effect on Friday. Markets took the new tariffs, which had been well-telegraphed for weeks, in stride. Click here to view the full recap.