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Weekly Update – May 31, 2019

  • Stocks and bonds fell around the world, capping off a tough month. Throughout May, investors had worried about slowing global growth and rising U.S.-China trade tensions — then the Trump administration announced that it would impose 5% tariffs on all Mexican imports. The tariffs would escalate by five percentage points each month, reaching 25% in October unless Mexico took action to reduce the number of migrants arriving at the U.S. border. The result was a flight from stocks to the perceived safety of government bonds, gold and the Japanese yen.
  • The major stock indexes relinquished modest midweek gains. Automakers and financials were especially hard-hit. The 10-year U.S. Treasury yield fell to 2.13%, a 20-month low. Yields on 10-year German bunds and 10-year UK Gilts fell into negative territory. Gold rose 1.5% to more than $1,311/troy ounce. Oil prices slumped to a three-month low as concerns about U.S. trade policy and China’s economic slowdown pinched the outlook for global demand. The dollar declined against a basket of major currencies.
  • The University of Michigan’s final index of May consumer sentiment reached 100.0, up from 97.2 in April but down from the initial estimate of 102.4. According to the survey, optimism eroded because respondents expect higher prices on imports as a result of increased tariffs. Accordingly, inflation expectations for the next 12 months rose, from 2.5% in April to 2.9% in May.
  • Official data showed China’s factory purchasing managers index fell from 50.1 in April to 49.4 in May. The result implies tensions with the United States have hit manufacturers harder than expected, and raises doubts about China’s ability to reverse its slowdown through fiscal stimulus.
  • Meanwhile, Commerce Department data continue to suggest the U.S. economy is on a solid footing. Personal consumption expenditures rose 0.3% in April, after March recorded the largest monthly increase since 2009. Pretax earnings increased 0.5% in April, the biggest rise so far this year. GDP grew at an annual rate of 3.1% in the first quarter, significantly higher than the 2.2% rate of 4Q18. Nevertheless, the government data showed declines in business investment and corporate profits.

CPWM Weekly Market Monitor (2019.05.31)

 

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