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Weekly Update – May 25, 2018

  • Stock prices declined around the globe as markets struggled with geopolitical indigestion from Washington. Threats against Iran, threats of tariffs on imported autos and cancellation of the U.S.-North Korea summit put investors into “risk-off” mode. Oil prices jumped on news that the supply glut had disappeared, but dropped after Saudi Arabia began to talk of expanding production. Gold prices rose, driven up by geopolitical stressors and easing fears of accelerated Fed rate hikes. The yield on the widely watched 10-year U.S. Treasury note fell back below 3%, finishing the week at about 2.93%.
  • The minutes from the FOMC’s May meeting noted that the economic outlook had changed little since the March meeting, and if incoming data confirmed the outlook, it would “likely soon be appropriate” to make another rate hike. The release offered few clues as to the total number of 2018 rate hikes, and did little to shift expectations away from a June increase.
  • The U. of Michigan’s index of consumer sentiment registered 98 in May, a step back from 98.8 in April but still historically elevated. Survey respondents cited less favorable conditions for buying big-ticket items such as homes and motor vehicles.
  • The Commerce Department reported that new home sales dropped 1.5% in April, to an annual rate of 662,000 units. Economists had expected 679,000. The report also revised March sales down to 672,000 units from the previously reported 694,000.
  • The Chicago Fed National Activity Index, a coincident economic indicator, ticked up to 0.34 in April from 0.32 in March, implying that the U.S. economy continues to grow above trend. The CFNAI Diffusion Index, a leading indicator, moved up to 0.23 in April from 0.11 in March, indicating that U.S. GDP growth is likely to continue to accelerate.
  • Markit’s U.S. manufacturing PMI increased 0.1 in May to 56.6, in line with estimates and hitting a 44-month high. The report highlighted strength in manufacturing production and new business, with business optimism the highest since February 2015. Services PMI was up to 55.7 from April’s 54.6 and hit a three-month high. New business slowed but remained near a three-year peak.

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