Week from 27 May to 2 June 2019
Global stocks sank again and govies rallied this week as investor sentiment soured over rising fears about world growth with very disappointing macro data in major economies and trade tensions between the world’s two largest economies showing no signs of abatement. The least we can say is that the hopes of a near-term deal are receding as both sides dig into their respective positions and even worse, this conflict is turning into a full-blown tech cold war. In retaliation for the latest U.S. action barring American companies from selling components to the Chinese giant Huawei, China was “seriously considering” limiting rare earth exports to the United States.
Furthermore, President Trump threatened to impose new tariffs on all Mexican imports from June 10 if the country does not stop illegal immigration, exacerbating concerns about an economic slowdown.
Lastly, his administration announced on Friday that it is ending special trade treatment for India, removing a status that exempts billions of dollars of the country’s products from U.S. tariffs.
The S&P 500 fell 2.62% with all sectors in the red but information technology (+4.36% WTD). The worst performer was energy (-4.44% WTD) as oil tumbled, U.S. crude broking below $54 per barrel (-8.75% WTD) on Trump’s softening cues about Iran. Similarly, the Russell 2000 slumped 3.21%. European markets backtracked too (MSCI EMU down 1.92%). By contrast, EM markets were up (MSCI EM +1.15%).
Unsurprisingly, the lumbering trade disputes boosted safe-haven assets as evidenced by the yields on Treasuries (10-year German benchmark debt at -0.2% reaching record low, 10-year T-Note at 2.14% falling about 20bps below the 3-month T-bill). The U.S. yield curve inversion is deepening to the widest level since 2007.
Investment grade corporate bonds also fared well (+0.28% in the eurozone, +0.49% in the U.S.) while high-yield bonds slipped around 0.55% on both sides of the Atlantic.
Lastly, gold logically found favour going back up to $1,305.80/oz (+1.73%) as markets remained into full risk-off mode, thereby acting as a hedge against trade jitters.
Find the full report here: https://www.trackinsight.com/weekly-flow-report/2019-05-31/global