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Week in Review

Week Ending: Friday, June 22, 2018

Recap & Commentary

Another week, another slew of tariff announcements resulting in uncertainty that weighed on broad equity markets.

  • President Trump threatened to hit $200B of Chinese imports with 10% tariffs if Beijing retaliates against his prior announcement of placing tariffs on $50B of Chinese goods. Further, he said that, should China respond with additional counter-tariffs, he would target yet another $200B of Chinese imports, bringing the potential amount of Chinese exports that could be targeted to $450B.
  • The European Union moved forward with its threat to impose duties on ~$3.2B worth of U.S. products. Within hours, Trump responded by threatening 20% tariffs on European cars.
  • India announced $240M worth of tariffs on various U.S. goods.
  • Turkey announced $267M worth of tariffs on various U.S. goods.

The U.S. administration also seems to be working on rules to block firms with at least 25% Chinese ownership from buying U.S. companies with “industrially significant technology”. In addition, the U.S. is working to tighten restrictions on Chinese investment in the U.S. and planning export curbs on 1,000 U.S. companies with technology deemed vital to national security.

OPEC, along with non-member Russia, agreed to increase oil production by one million barrels/day.  The actual increase is expected to be closer to 600-700k barrels/day due to outages and production constraints in certain countries.

Economic Bullet Points

Housing data was mixed in May. Housing Starts, driven by a spike in construction activity, rose 5% M/M to the highest level since 2007. Note, however, that starts make up less than 10% of inventory, and reported data is volatile. May’s data point was accompanied by a 10.2% margin of error. Building permits, a better indicator of construction in the pipeline, dropped 4.6%, with declines across both single family and multi-family units. Existing Homes Sales, the more significant share of the market, were soft, declining a lower-than-expected 0.4%, as headwinds caused by the lack of inventory, high home prices, and rising mortgage rates persisted.

US Current Account—The Q1 US current account deficit, a measure of the US versus international trade balance in goods, services, and unilateral transfers, widened by $8.1B to -$124B, after estimates were sharply revised from -$128.2B in Q4 to -$116.2B in Q1. As a percentage of GDP, however, the deficit rose only slightly to a still moderate 2.5%, versus 2.4% in the prior quarter.

Jobless Claims remain very low and are consistent with a low unemployment rate and strong job growth. Claims decreased by 3K to 218K versus the 221K expectation.

Leading Indicators pointed to solid growth, but the current trend is moderating indicating that economic activity is not likely to meaningfully accelerate.

Tariffs aside, Philly Fed Business Outlook, reported strong manufacturing sector growth despite momentum easing from the near-record levels reported recently.

Of Note

  • The Supreme Court ruled that states can require online retailers to collect sales taxes even in states where the retailers have no physical presence.
  • GE, an original member of the Dow Jones Industrial Average when it was formed in 1896 and once the world’s most valuable company, was removed from the index.

Market Indices Week of 6/22

S&P 500                       -0.9%

Russell 2000                 0.1%

MSCI EAFE                   -1.0%

MSCI EM                       -2.3%

Commodities              -0.4%

Barclay’s Agg.               0.0%

US Dollar Index           -0.3%

10-Yr Yield                    2.90%

WTI Oil ($/bl)                   $69

Gold ($/oz)                    $1,269

The Week Ahead

  • New Home Sales
  • Durable Goods Orders
  • International Trade in Goods
  • GDP
  • Jobless Claims
  • Corporate Profits
  • Consumer Sentiment

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