Week in Review


Week in Review: June 18, 2018

Calm Amid a Squall

Despite one of the busiest weeks of the year in terms of potential market moving headlines and economic data, U.S. equities barely budged. The S&P 500 ended the week virtually unchanged with only a 0.1% gain, while the MSCI EAFE ended the week down by -0.5% and the MSCI Emerging Markets index declined by -1.8%. Perhaps the most significant moves were in the bond market, where the U.S. yield curve flattened slightly as the Federal Reserve raised short term interest rates by 0.25%. 

The unprecedented summit between President Trump and North Korean leader Kim Jong Un in Singapore concluded without an announcement of any specific steps to dismantle North Korea’s nuclear facilities, or any progress towards a final peace treaty between North and South Korea, which still remain technically at war. However, the door appears open for what could be further negotiations and a prolonged de-escalation of the conflict. This would be a positive for risk assets. 

The world’s key central banks were busy last week. The decision by the Bank of Japan to stick to its zero interest rate policy and continue with its bond buying program was hardly a surprise, given ongoing softness in the Japanese economy and the recent downtick in inflation. The ECB decision on Thursday was mixed. The bank did schedule an end to its bond buying program by the end of December. Given the turbulence in markets caused by the newly formed populist government in Italy as well as the rollover on European economic data over the last several months, it was by no means certain the ECB would make this announcement, as it represents a ‘tightening’ of monetary policy. However, the ECB also announced that it was sticking with the central bank’s negative deposit rate (a headwind for European banks for years now) and that a rate hike would come in the second half of 2019 at the earliest. European stocks and bonds edged higher on the news. 

There was more uncertainty surrounding the FOMC decision Wednesday. As expected the Fed raised rates 25 basis points as expected to 1.75-2.0%, but also pulled one more rate hike into 2018, for a total of four based on its more robust outlook for economic growth, lower unemployment and inflation. Additionally, the Fed dropped the forward guidance language that suggested that rates would remain low for an extended period. This language has been used for most of the post-recession period and its elimination suggests that the US economy is in fine shape, according to the Powell Fed. The mildly hawkish announcements continued to boost the US dollar and pressured emerging market stocks.

The week ended with news that the Trump administration plans to go ahead with $50B in tariffs on China—mostly on commodities and low value-add manufactured goods. China reacted in-kind, announcing its own tariffs totaling $50B. There is a phase-in period for both sides so there’s a chance at least that they can be averted at the last minute. 

Market Returns (USD)

1-Week

Quarter-to-Date

Year-to-Date

1-Year

Global Equities

MSCI All Country World


-0.3% 2.8% 1.9% 13.4%

S&P 500


0.1% 5.7% 4.9% 16.5%

Dow Jones Industrial Average


-0.8% 4.7% 2.6% 20.2%

NASDAQ


1.3% 9.9% 12.8% 27.0%

Russell 2000


0.7% 10.3% 10.3% 20.9%

MSCI EAFE


-0.5% 0.8% -0.8% 9.5%

MSCI Emerging Markets


-1.8% -4.4% -3.1% 13.5%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.0% 0.6% 0.0% -0.3%

Bloomberg Barclays Intermediate Government/Credit

0.0% -0.3% -1.3% -1.1%

Bloomberg Barclays High Yield Bond

0.4% 1.6% 0.7% 3.1%

JPMorgan GBI Emerging Markets Global Diversified

-1.9% -10.4% -6.4% -2.5%

Market Levels

Friday

Week Ago

Year End

Year Ago

S&P 500


2779.66 2779.03 2673.61 2432.46

Dow Jones Industrial Average

25090.48 25316.53 24719.22 21359.9

10-Year U.S. Treasury Yield (Constant Maturity)

2.93% 2.93% 2.40% 2.16%

Gold ($/oz)


$1,278.94 $1,298.17 $1,302.80 $1,253.98

Crude Oil ($/barrel)


$65.06 $65.74 $59.76 $46.86

U.S. Dollar / Euro ($/)


1.16 1.18 1.20 1.11

U.S Dollar / British Pound ($/£)


1.33 1.34 1.35 1.28

Japanese Yen / U.S. Dollar (¥/$)


110.66 109.55 112.69 110.93