July 09, 2019

Financial Markets

  • Major equity indices rallied in April with the S&P 500 and others hitting record highs on better than expected earnings and economic data. Markets declined sharply in May on escalation of trade tensions and weaker than expected economic data.  Equity markets rebounded in June on optimism for rate cuts and hopes for renewed trade talks.
  • S. Treasury bond yields rose in April before declining sharply as signs of slowing in key economic data, such as industrial activity, resulted in the Federal Open Market Committee (FOMC) indicating a willingness to cuts its policy interest rate. The benchmark 10-year U.S. Treasury bond yield briefly dipped below 2% during the quarter.
  • Crude oil prices rose to the mid-$60s per barrel in April, dropped 10% in May on weakening demand, and rebounded 9% in June due to increasing tensions between the U.S. and Iran.

Overview of the Economy

  • S. gross domestic product (GDP) rose 3.1% for the first quarter, well above forecasts. China’s GDP also was better than expected.  However, certain data about second quarter activity (industrial activity in particular) weakened.  For example, in China retail sales hit a 16-year low and industrial output hit a 17-year low.  Japan’s exports declined 7.8% in May, the sixth consecutive monthly decline.  U.S. durable goods orders declined in April and May.  Service sector and labor market data continue to be solid.

Notable Events

  • S./China trade talks progressed in April but broke off suddenly. Then the U.S. raised tariffs on $200 billion in Chinese imports to 25% from 10%.  The Chinese reciprocated with tariffs on $60 billion of U.S. imports.  Trump and Xi meet at the G-20 conference in June and agreed to renew discussions.