Daily Market Color July 25, 2018US-EU Trade Concessions Drive Risk Assets Jeff Davenport EU Trade Concerns Ease Today’s meeting between President Trump and European Commission President Jean-Claude Juncker appeared to be successful in de-escalating the threat of a trade war between the US and the EU. Both sides agreed to make concessions to improve the transatlantic trading relationship, including reducing industrial tariffs and increasing European liquefied natural gas (LNG) and soybean imports from the US. “We agreed today, first of all, to work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods,” Trump stated in the media event following the meeting. Such measures include the reassessment of the steel and aluminum tariffs imposed by the US, as well as the retaliatory duties levied by the EU. Of great importance to the auto industry, the two sides settled on not imposing any new tariffs in the context of ongoing trade talks. US financial markets shifted into risk-on mode following the pro-trade news out of Washington this afternoon. All three major indices closed sharply higher, with the tech-heavy Nasdaq leading the way and posting a 1.2% gain to a new record high. Both the S&P 500 (+0.9%) and DJIA (+0.7%) also finished with solid increases, helped in part by the continued strength in corporate earnings releases. US Treasurys ended the trading session with a moderate selloff, as yields/swap rates climbed 2-4bps across the curve. The dollar similarly declined on the day, finishing 0.5% lower against major currencies, highlighted by a 1.2% drop against the Mexican peso, after Mexican officials reaffirmed their commitment to “NAFTA as a trilateral agreement”. In commodities, WTI crude oil prices surged 1.1% to $69.30/barrel following a report from the EIA which displayed a 6.1 million barrel reduction in stockpiles last week (-2.1 million expected). Further Evidence of Cooling Housing Market Reaffirming the slowdown in existing home sales reported earlier this week, today’s new single-family home data release from the Commerce Department exhibited an eight-month low in June. New home sales tumbled 5.3% MoM to a seasonally adjusted 631,000 pace, alongside a sharp downward revision to the prior month (-23,000). The June figure shifted the three-month average to a paltry 646,000 pace. Trending away from the dynamic of the housing market earlier this year, inventory increased to its highest level since last summer, recorded at 5.7-month supply. Rising mortgage rates and increased construction costs now represent the largest hurdles for a housing market that has experienced a meaningful cooldown in recent months.