Daily Market Color June 27, 2018Markets React to Trade Developments Goods Report Presents Mixed Information Durable goods orders decreased by 0.6% month-over-month for May, a smaller decline than median forecasts calling for a 1.0% decrease. The headline was dragged down by a 1.0% slide in the orders for transportation equipment (specifically commercial aircraft, which can be volatile, declined 7%). Core capital goods orders (nondefense, excluding aircrafts) unexpectedly declined 0.2% (+0.5% expected), yet the prior month’s reading was revised higher from a gain of 1.0% to a gain of 2.3%. Adding to the mixed outlook, core capital shipments reversed course and were down after last month’s increase, falling 0.1%, versus median forecasts of +0.3%. Kudlow Comments on Trade National Economic Council Director Larry Kudlow commented that President Trumps plan to overhaul the Committee on Foreign Investment in the United States (CFIUS) was designed to protect American intellectual property. “It is not meant to be harder or softer. It is going to be very comprehensive and very effective at protecting our technological family jewels in the United States,” said Mr. Kudlow in an appearance on Fox Business Network. The House has approved the Foreign Investment Risk Review Modernization Act overwhelmingly and the Senate is expected to pass the measure with little resistance. Bullard on Risk of Raising Rates Today St. Louis Fed President, James Bullard, spoke to the Wall Street Journal on the topic of raising rates too quickly. Bullard expressed concern over the potential to overshoot the neutral rate, the benchmark rate that neither prevents or is overly accommodative of growth. “I think there is a risk that we’ll go too far, too fast as a committee,” Bullard said. Bullard has argued that the neutral rate is only 2%, while other Federal Reserve officials feel the neutral rate is closer to 3%. Bullard is currently a non-voting member of the Open Markets Committee, but will be a voting member in 2019. Trade Concerns Roil Markets Trade Tensions again weighed on the markets as the tech and financial sectors felt the heat of the Trump administration’s stance on international trade. Equity markets couldn’t hold on to early day optimism, with all three major indices down on the day. The NASDAQ led the way lower losing 1.54% followed by the S&P and DJIA falling 0.86% and 0.68%, respectively. Risk free assets were a popular buy with Treasuries rallying throughout the day — yields on treasuries were off 3-6 bps across the curve with the 10-year closing at a yield near 2.86%. In foreign exchange markets, the US Dollar (USD) gained 0.8% vs both the Euro (EUR) and the Pound (GBP). As the dollar climbed, crude oil futures followed gaining 1.7% to close at $72.30/barrel. Tomorrow is filled with announcements as the final GDP numbers for the first quarter will be reported, and the return of capital portion of CCAR (Bank Stress Tests) is reported.
