Week from 13 to 19 May 2019
Global stock markets have come under pressure this week on fears over escalating trade war. On the one hand, China will impose new retaliatory tariffs on $60bn worth of U.S. goods in June. On the other hand, the U.S. government has hit the Chinese telecom giant Huawei by banning it from the U.S. 5G market.
Despite some upbeat economic news (with housing starts rising 5.7% in April, manufacturing activity in the Philadelphia region accelerating more than expected while jobless claims fell) and solid company earnings (Walmart and Cisco more specifically), Wall Street’s main indices succumbed to selling pressure dropping from -0.76% (S&P 500) to -2.37% (Russell 2000). China and emerging markets witnessed the most significant falls (MSCI All China index down -3.05%, MSCI EM index losing -3.58%) as was the case last week.
Surprisingly, Europe was fighting back after three weeks in the red (MSCI EMU up +1.24% WTD) as the Trump administration announced that the decision of whether to introduce new import tariffs on foreign cars would be delayed for 180 days.
Among the S&P sectors, the best performers were logically the most defensive (utilities : +1.17%, real estate : +1.36%, consumer staples : +0.8%). By contrast, financials and industrials lost ground (-2.09% and -1.93% respectively). Energy was also down (-0.72% with the largest weekly outflows) though crude oil surged 1.78% (WTI) from $61.66 to $62.76 amid tensions in the Middle East.
On the interest rate front, investment grade corporate bonds and high-yield bonds fared well while the yield of the U.S. 10-year T-Note eased from 2.47% to 2.39%, i.e. almost in line with the 3-month T-bills (2.37%). Once again, the yield curve is about to invert in the U.S. which might be seen as an early-warning sign that a recession is coming. Besides, the New York Fed’s gauge of recession probability over the next 12 months is now at 27.5%, the highest since the 2008 financial crisis.
Read the full report : https://www.trackinsight.com/weekly-flow-report/2019-05-17/global