Friday, 15 June 2018

In contrast to reactions over geopolitical concerns for most of this year, the end of the G-7 Summit did not appear to shake equity markets, despite President Trump openly expressing his opinion on Canada’s Prime MinisterTrudeau.

Additionally, Trump’s meeting with DPRK’s Kim Jong-un seemed to only affect aerospace and defense stocks, down roughly 2.5 percent this week. Stocks closed lower on Wednesday after the FOMC meeting announcement where the Fed announced a raise in the target federal funds rate to 1.75-2.00 percent, up 25 basis points.

A federal judge approved AT&T’s acquisition of Time Warner, reigniting the bidding war between Disney and Comcast for 21st Century Fox with the expectation that an acquisition would be successful.

Two-year yield hits record high

With the federal funds rate hike and $22 billion in auctions this week, the U.S. 10-year Treasury note yield broke above 3 percent Wednesday night, but dropped back down to close at 2.93 percent Thursday. The U.S. two-year yield rose to its highest point since 2008, closing at 2.57 percent, further flattening the yield curve.

Labor market remains strong

In addition to raising rates on the basis of a strong labor market and higher household spending, the Fed gave updates for economic projections. Unemployment is expected to be at 3.6 percent at the end of 2018, PCE and core PCE expectations moved up to 2.1 percent and 2.0 percent, respectively, and real GDP growth was raised to 2.8 percent for the year.

The May Consumer Price Index came in at the expected 0.2 percent for both CPI and core CPI. Final demand PPI and PPI – less food and energy – were higher than expected, but PPI – less food, energy, and trade services – came in lower than consensus as trader services were the strongest driver of PPI, up 0.9 percent.

Jobless claims are down 4,000 this week, in significant contrast to the expected increase in claims, supporting the Fed’s outlook for a strong labor market. Additionally, retail sales for May were above consensus by a significant margin, further signaling the additional rate hikes this year.

The  Weekly Market Update is prepared by our Global Wealth Investments team to help explain changes in major market indices during the previous week and provide context for economic data.

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