Daily Market Color

US Stocks, Treasurys Edge Lower with Mixed Economic Data, Geopolitical Concerns

Geopolitical risks continued to dominate headlines across global financial markets to begin the week.  In the Middle East, it was announced this morning that Saudi Arabia, Bahrain, Egypt, and the United Arab Emirates would be cutting ties with Qatar, effectively suspending all air and sea travel to/from the nation and removing all diplomats from the area.  The unprecedented move to isolate Qatar reportedly stemmed from their involvement with several Iranian-backed militant groups whose purpose is to generate instability in the region.  As one of the world’s richest nations, Qatar is the leading global supplier of liquefied natural gas and is home to the United States’ primary Middle East military base.  Equity markets in Qatar fell by more than 5% following the news, while the ultimate impact of this move on oil prices and other financial markets remains up-in-the-air.  In the U.K., Saturday’s latest terrorist attack provided another disruption to the British general elections set for this Thursday.  Polls continue to show a tight race as election day nears, yielding a cautious tone amongst investors as a victory for the Labour party would be sure to disrupt current projections for the U.K.’s growth prospects.  Also scheduled for Thursday is former US FBI Director James Comey’s testimony before the US Senate, where past conversations held between Comey and President Trump with regard to Russian interference in the 2016 presidential election will be center stage.  Upon first learning of the potential misstep by the US President last month, global markets gapped lower across the board with a substantial risk off move.

US economic data reported today was abundant, beginning with Q1 nonfarm productivity and labor costs, both of which came in near expectations at flat and +2.2%, respectively.  A decline in capital expenditure among US firms was pointed to as the reason for sluggish productivity in the beginning of the year, although the revision from -0.6% to flat during Q1 was certainly welcomed.  A second report today displayed headline factory orders declining 0.2% during the month of April, weighed down by a 0.8% drop in the durable goods component.  Both core capital goods orders and shipments managed marginal 0.1% gains, exhibiting further struggles in the manufacturing sector.  Finally, the Institute for Supply Management (ISM) released its Non-Manufacturing Index today, which exhibited robust expansionary growth in business activity (60.7) and new orders (57.7) during May.  Employment similarly displayed solid growth, jumping 6.4 points to 57.8, its highest level in nearly two years, albeit the figure somewhat contradicts the weaker-than-expected employment data released last Friday.  The headline index recorded a 56.9, roughly in-line with expectations.

All three major stock indices edged 0.10%-0.15% lower on the day, while Treasurys experienced a mild selloff.  Yields/swap rates are up 1-3 bps across the curve, reversing a portion of Friday’s post-jobs report rally.  Crude oil prices continued to slide, with WTI crude down 0.6% on the day to $47.40/barrel.  The US dollar fell for a second straight day, down 0.2% against major currencies.   

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