Daily Market Color

Geopolitical Concerns Temper Risk Appetite

 

Jobless Claims Remain Low  

A light day of key economic data releases was highlighted by a report from the Labor Department, which showed initial jobless claims in the US holding near historically low levels amid the backdrop of a strong economy and tight labor market.  The number of new claims for the week ended May 12th increased 11,000 to a seasonally adjusted 222,000 (215,000 expected), and the four-week moving average of claims fell by 2,750 to 213,250 (lowest since 1969).  Also detailed in the report, the number of continuing claims decreased by 87,000 to 1.707 million for the week ended May 5th.

 

 

Speaking on the current state of the jobs market, earlier today Dallas Fed President Robert Kaplan (non-voter) provided his view that “we are either at or already past full employment” and that the current unemployment rate of 3.9% would not be sustainable.  However, Kaplan continues to maintain his outlook for two additional hikes in 2018, in recognition of the second half of the Fed’s dual mandate, inflation, rising towards the 2% target but “not running away from us”. 

 

 

Limited Movement in Equity Markets

US stocks were higher for the majority of the today’s session before paring gains and finishing mostly unchanged.  All three major indices closed down less than 0.25%, with the DJIA losing 0.22%, the Nasdaq losing 0.21% and the S&P losing 0.09%.  The US Treasury curve steepened on the day, as the 2-year note yield was down 2 bps while the 10-year note yield was up 1.5 bps to 3.11% – the highest it has been since 2011.  In currency markets, the US Dollar (USD) was up 0.1% vs. the Euro (EUR) and 0.3% vs. the Yen (JPY).  Crude oil futures fell 0.2% to $71.34/barrel after record output from shale fields put a damper on the rally sparked by shrinking surpluses.

 

 

Uninspiring news related to a number of US trading relationships represented much of the weight on market sentiment, highlighted by President Trump’s unenthusiastic comments towards his meeting with Chinese officials.  “Will that be successful? I tend to doubt it,” Trump announced ahead of a round of talks between trade representatives from the US and China.  Trump then expanded his view to include that “The reason I doubt it is because China has become very spoiled. The European Union has become very spoiled. Other countries have become very spoiled, because they always got 100 percent of whatever they wanted from the United States.”

 

 

Separately, today’s deadline to reach a preliminary agreement on NAFTA looks like it will come and go, as the US, Mexico and Canada have been unable to progress at a quick enough pace.  As a result, formal approvals in the US would not be able to take place until the newly elected Congress takes office in 2019.  On the bright side, Canadian Prime Minister Justin Trudeau announced earlier today that he felt “positive” about the talks, and Mexico’s Economy Minister Ildefonso Guajardo expressed optimism that “if the conditions are defined by next week, nothing stands in the way of closing a deal by the end of May”.    

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