Treasurys Rally with Trade Concerns

 

Service Sector Shows Strength

Key economic data releases on the day were highlighted by the Institute for Supply Management’s non-manufacturing index, which displayed an acceleration in the services sector during May.  The index increased 1.8 points (+0.9 expected) to a reading of 58.6, representing a steady rebound from three consecutive months of declines.  The new orders, business activity and employment components provided the largest boost, helping the index remain well above the 50 reading associated with an expanding service sector.

 

 

Other key data on the day included the Labor Department’s JOLTS report.  Job openings during April rose by 65,000 to a seasonally adjusted pace of 6.70 million – the highest level since the collection of the data began in December 2000.  Also notable within the data, the number of available positions exceeded the total number of unemployed Americans who are actively looking for jobs for the first time.  The largest number of openings were recorded in the business services sector (1.3 million), followed by the health-care and social assistance industry which reported 1.1 million open roles.

 

 

Tech Sector Rallies, Yield Curve Flattens

The tech-heavy Nasdaq closed at a new record high for a second consecutive session, up 0.4% on the day, as the technology sector continued to add to it’s 6.6% rise over the past month.  Other major equity indices finished near flat as shares in utilities (-0.6%) and financials (-0.3%) weighed on the tech gains.  US Treasurys maintained a steady rally throughout the day led by the belly of the curve as yields/swap rates declined 1-4 bps across the curve, with the 10-year note yield finishing near 2.92% (-2bps).  The Treasury yield curve is once again at its flattest levels in more than a decade, as the difference between 2- and 10-year note yields is currently near 43bps.  In commodities, WTI crude futures added 1.2% to settle near $65.50/barrel, while gold gained 0.25% $1,300/ounce with the ongoing global trade uncertainty.

 

 

Mexico Strikes Back

In the latest chapter of the global trade tariff saga, this afternoon the Mexican government announced roughly $3 billion worth of retaliatory duties to be levied on US imports, specifically targeting US agricultural exports which would have the biggest impact in “pro-Trump” Midwest states.  The list of American goods to be taxed includes steel, fruit, cheese, bourbon and pork, each of which will have a 20%-25% tariff imposed.  Currently, Mexico represents the largest importer of US pork products and a net importer of steel.  Mexican Economy Minister Ildefonso Guajardo stated that the nation would now be looking to Europe for an increased share of pork imports.