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Market Summary

U.S. equities eked out small gains overall last week amid a relatively light week of trading volume as investors weighed the recent slowing trend in economic growth data ahead of this week’s highly anticipated Federal Open Market Committee (FOMC) meeting. For the week, the S&P 500 and Dow Jones indices generated 0.5% returns, while the Nasdaq Composite index finished slightly higher with a 0.7% gain. Fixed income markets were also mostly flat for the week as the 10-year Treasury yield remained at about 2.09% as investors await indications on the direction of monetary policy.

At this Wednesday’s FOMC meeting and post-meeting Q&A with Fed Chairman Jerome Powell, many market participants are expecting the Fed to signal a path to loosening monetary policy in response to weakening economic data, although most are not expecting a rate cut at this week’s meeting. According to the CME’s FedWatch Tool, the prospect of at least one rate cut by year end is priced into the fed fund futures market at almost a 99% probability, but the likelihood of a rate cut at this week’s meeting is only 23%.

The trade dispute between the U.S. and China, which is increasingly cited by proponents of easier monetary policy as a reason to cut interest rates, remains at a standstill with little likelihood for a near-term resolution. However, President Trump will meet with Chinese President Xi at the G20 Summit later this month to set new ground rules for discussion and a schedule for more detailed technical talks. More U.S. companies are feeling the impact of the trade conflict with several notable chipmaker stocks selling off last week following negative revisions to the semiconductor demand outlook for 2019, partially stemming from the conflict.

On a separate trade front, India implemented tariffs on Sunday against about $240 million in U.S. goods, including food products like grains and apples, in retaliation against U.S. import duties on Indian steel and aluminum that were imposed last year. While the scale of the initial tariffs is limited, many investors will be paying attention to any response out of Washington in the event of any counter measures.

Economic Highlights:

Inflation: Although health care service costs continue to increase at a high rate in the U.S., inflation broadly continued to trend lower in May, with the Consumer Price Index coming in at 1.8% year-over-year compared to 2.0% in the prior month and consensus expectations of a 1.9% increase.

Oil: Crude oil prices fell last week as global inventories remained higher than expected, but attacks on two oil tankers in the Gulf of Oman, one of the world’s busiest energy shipping routes, pushed up prices later in the week on concerns that escalating conflicts in the Middle East could disrupt oil supply lines.

Consumption: U.S. retail sales growth came in slightly below expectations for May (+0.5% over April versus forecasts for +0.6% growth), as did the University of Michigan Consumer Confidence survey, which fell from 100.0 to 97.9 in June.

US Economy – The Week Ahead

Tuesday, 6/18/2019

  • Housing Starts – Consensus Estimate: 1,246K (0.9% MoM), Prior Month: 1,235K (5.7% MoM)
  • Building Permits – Consensus Estimate: 1,292K (0.2% MoM), Prior Month: 1,290K (0.2% MoM)

Wednesday, 6/19/2019

  • Federal Open Market Committee (FOMC) Meeting – 23% probability of an 0.25% rate cut, according to CME’s FedWatch Tool

Thursday, 6/20/2019

  • Initial Jobless Claims – Consensus Estimate: 220,000 (-0.9% WoW), Prior Week: 222,000 (1.4% WoW)
  • Leading Economic Indicator Index (Month-over-Month) – Consensus Estimate: 0.1%, Prior Month: 0.2%

Friday, 6/21/2019

  • Existing Home Sales – Consensus Estimate: 5,250K (1.2% MoM), Prior Month: 5,190K (-0.4% MoM)
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