Global equities fell 0.1% amid the diplomatic summit between President Trump and Kim Jong-un in Singapore, central bank announcements and a revival of US-China tariff rhetoric.
In the US, data were mostly positive. May retail sales increased 5.9% y/y, beating forecasts. May industrial production fell 0.1% m/m but rose 3.5% y/y. May consumer prices rose 2.8% y/y, slightly higher than estimates, and core-consumer prices (excluding energy and food) rose 2.2% y/y, in line with forecasts. On Wednesday, as widely expected, the Fed raised the Fed-Funds target range by 25 basis points to 1.75%–2.00%. In comments explaining the rate hike, Fed Chair Jerome Powell noted the economy is doing very well with unemployment and inflation remaining low. On Friday, President Trump announced tariffs on about $50 billion of Chinese goods and China responded with plans for retaliatory tariffs. However, while these tariffs are misguided in our view, they lack the scale needed to wallop the $80 trillion global economy. Additionally, in today’s globalized economy, goods and services are more interchangeable and capital flows across borders freely—mitigating tariffs’ negative impact. For more, please see our 04/06/2018 commentary, “To Weigh the US – China Trade Tiff, Avoid Extrapolation.”
European data reports were mixed. April eurozone industrial production fell 0.9% m/m but increased 1.7% y/y—both missing expectations. May core-consumer prices (excluding energy, food, alcohol and tobacco) rose 1.1% y/y. On Thursday, the European Central Bank announced plans to wind down its quantitative easing program by December—a positive in our view. The end of quantitative easing should allow eurozone yield curves to steepen a bit, supporting loan growth and the broad economy. Switzerland voted down a referendum that would have established a 100% reserve requirement for its banks. In the UK, April industrial production fell 0.8% m/m but rose 1.8% y/y—both missing estimates. May retail sales volumes increased 3.9% y/y, higher than forecast. May core-consumer prices (excluding energy and food) rose 2.1% y/y, matching expectations. The April unemployment remained unchanged at 4.2%.
In Asia, Japan’s April retail sales beat expectations, rising 1.5% y/y. April industrial production increased 0.5% m/m and 2.6% y/y. The Bank of Japan left monetary policy unchanged. China’s May retail sales grew 8.5% y/y but missed expectations. May industrial production rose 6.8% y/y.
The US and eurozone release June Markit manufacturing and services Flash Purchasing Managers’ Indexes (PMIs). The US also announces the Conference Board’s May Leading Economic Index. Japan reports May inflation and trade data and June Nikkei manufacturing Flash PMI. The Bank of England meets to set monetary policy.
Source for all data cited is FactSet. This update constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Global equities are represented by the MSCI World Index. The MSCI World Index measures the performance of selected stocks in 23 developed countries and is presented net of dividend withholding taxes and uses a Luxembourg tax basis. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.