Weekly Wrap-Up

Last Week In Markets: May 28 - June 1, 2018

Fisher Investments recaps the biggest market, political and economic news from last week, including US economic data releases, European political drama and Asian manufacturing data releases.

Global equities were flat amid a flurry of political news in the US and eurozone. Political drama in the eurozone stoked plenty of intra-week volatility in stocks and bonds. Spain and Italy formed new governments. Spanish (now former) Prime Minister Mariano Rajoy lost a confidence vote Thursday night, ushering in Socialist leader Pedro Sánchez as the new Prime Minister. In Italy, negotiations over a populist coalition between the Five Star Movement (M5S) and the League collapsed at the start the week but were revived late Thursday and received President Sergio Mattarella’s stamp of approval to proceed. It’s unlikely either of the new governments will be able to pass significant legislation—a positive for markets. For more, read our 06/01/2018 MarketMinder commentary, “Italy and Spain Get New Governments—but Still Have Gridlock.” On the economic front, eurozone April loan growth grew 2.9% y/y—the same pace as the previous month. May Markit manufacturing PMI came in at 55.5—lower than April’s reading, but still indicating growth. The April unemployment rate fell to 8.5%. In the UK, the May Markit manufacturing PMI rose to 54.4—ahead of forecasts.

US economic data were largely positive. The second estimate of Q1 2018 GDP was reported at 2.2% annualized—slightly below the first estimate of 2.3%. The May Markit manufacturing Purchasing Managers’ Index (PMI) came in at 56.4—indicating expansion. Nonfarm payrolls increased by 223,000 and the unemployment rate fell to 3.8% in May—both beating expectations. In politics, President Trump announced that the on-again, off-again summit with North Korea’s Kim Jong Un is still scheduled to be held on June 12, as was initially planned. The Trump Administration also announced it will lift its exemptions for Europe, Mexico and Canada from the tariffs on steel and aluminum imports (25% and 10% respectively). However, as our 03/07/2018 MarketMinder commentary “Scaling Tariffs and Reviewing History” detailed, steel and aluminum tariffs lack the scale to meaningfully dent global trade. While we regard tariffs as ill advised, measures like this haven’t historically triggered large scale trade wars.

In Japan, the May Nikkei Manufacturing PMI came in at 52.8. April retail sales rose 1.6% y/y, ahead of expectations. The unemployment rate remained at 2.5% in April. In China, the official May manufacturing and services PMI surveys, including large, state-owned firms, rose to 51.9 and 54.9, respectively. The May Markit/Caixan manufacturing PMI—which includes smaller businesses—came in at 51.1, slightly below expectations.

The Week Ahead:

The US, eurozone and UK report May Markit services PMIs. The US releases April trade data. The eurozone announces April retail sales numbers and the third estimate of Q1 2018 GDP. Japan reports its second estimate of Q1 2018 GDP and China posts May trade and inflation data.

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.