Week from 3 to 9 June 2019
Friday’s jobs report showed that U.S. private employers had hired at a very slow pace in May: non-farm payrolls rising by only 75k, i.e. 110k less than consensus expectations, another catalyst of the slowdown in global growth. This bad news has to be added to the disappointing macro data published a week ago (see our previous comments) which could have prompted investors to remain cautious against a backdrop of worrying geopolitical tensions.
That would be forgetting the Federal Reserve whose chairman confirmed that he stood ready to support the U.S. economy if the trade war got out of control. In other words, the central bank will cut interest rates if needs be and stock market investors bet that the bad economic reports, as well as muted inflation pressures (wage inflation growing just 3.1% on an annualized basis, dropping from the prior month’s reading of 3.2%), will lead to lower interest rates. However, whether such measures will be able to offset a sharper slowdown of the U.S. economy remains to be seen…
Last but not least, the week ended with good news coming from U.S. Treasury Secretary Steven Mnuchin who declared that the U.S.-Mexico deal eventually met President Trump’s objectives of fixing the illegal immigration issue.
Hence the equity rally over the first week of June. Overall stock prices have gone up around the globe (S&P500 +4.41%, MSCI World +3.94%, MSCI EMU +2.38%) with the notable exception of China (MSCI ALL CHINA + HK + TW down 1.05%).
Information technology was the only sector in negative territory (-0.27%). The highlight of the week was the antitrust investigation launched into the tech giants, the Federal Trade Commission and the Department of Justice dividing oversight over Amazon, Apple, Facebook and Google.
By contrast, materials rebounded strongly (+9.02%) after 7 weeks in the red. The same held true of industrials (+5.1%) and energy (+4%) even though crude oil only rose 0.92%. Even defensive sectors which had outperformed the market over the last three weeks managed to gain 2.63% (real estate) and 2.89% (utilities) WTD.
On the interest rate front, it’s worth noting that all the asset classes were up. Emerging debt, U.S. high yield and investment grade corporate bonds took the lead (+1.27%, +1.09%, +1.07% WTD respectively) while the yield of the U.S. 10-year T-Note eased again from 2.14% to 2.09%, i.e. almost 20bps below the 3-month T-bills (2.28%). As a result, the yield curve inversion is still in place.
In the same vein, gold continued its winning streak above $1.340/oz. Risk aversion has not gone away even if the VIX index has fallen to 16.
Find the full report here : https://www.trackinsight.com/weekly-flow-report/2019-06-07/global