April 19, 2019

Financial Markets

  • Major U.S. equity indices rallied sharply and recovered nearly all the fourth quarter 2018 decline. Renewed trade talks, better than expected earnings news, strong labor market data, and an accommodative Federal Reserve Open Market Committee (FOMC) all provided a boost to risk assets.  Developed international and emerging markets (EM) equity indices also had sizeable gains boosted by policy makers announcing new stimulus actions.
  • U.S. Treasury bond yields rose for part of the quarter before declining late in the quarter on safe haven trading and indications of easier monetary policy.
  • Crude oil prices rose from the mid-$40s to $60 per barrel due to lower production and sanctions.

Overview of the Economy

  • U.S. gross domestic product (GDP) rose 2.2% for the fourth quarter, down from 3.4% in the third quarter, but still reflecting solid manufacturing and service sector activity and a strong labor market. Data from China continued to weaken and the government implemented additional fiscal stimulus and credit easing moves.  Data from the eurozone also weakened with factory output dropping to a six year low.

Notable Events

  • The FOMC made a “dovish pivot” and indicated it would likely not raise its fed funds rate this year and said it would end its balance sheet reduction plan in September.
  • MSCI decided to significantly increase the weighting of China in its benchmarks, which drove the Shanghai Composite sharply higher.
  • President Trump delayed the increase in Chinese tariffs to 25% from 10% scheduled for March 1 due to the progress being made in the trade talks.