Asian markets got off to a good start last week as it appeared that tariff issues between the U.S. and China were coming to a resolution. But by mid-week, President Trump had ruined that aspect of positive sentiment, sending markets into a tailspin, after he said he was displeased with the progress being made in trade talks with China. He added to the geopolitical rumblings by calling off his meeting with North Korean leader Kim Jong-Un, citing “tremendous anger and open hostility” as the reason. As markets were still reeling from these pronouncements, U.S. officials then announced Thursday that they were considering a 25% tariff on auto imports, sending markets in Japan and South Korea into a tailspin. By the end of the week, the Nikkei in Japan was off by 2.1%, while China’s Shanghai Composite fell 1.6% and Hong Kong’s Hang Seng lost 1.5%. South Korea’s Kospi managed to finish the week flat, with a slight 0.01% gain; but Australia’s S&P/ASX 200 fell for a second consecutive week, posting a 0.9% loss.
Losses began to slow by the end of the week, so the new week could once again get off to a good start; but potential auto tariffs and other geopolitical risks that are emanating from the Asian region will likely be enough to keep gains muted. Australia has largely been focusing on domestic issues and will likely remain that way. Japan will still struggle with potential auto import tariffs; but if the Yen softens further, it should support equities. Chinese investors will continue dealing with U.S./China tariff issues; but we can hope there will once again be some resolution and allow equities to begin advancing again.
Despite the Euro and Pound continuing to soften against the U.S. dollar, equity markets last week were unable to make gains as numerous factors weighed. In the region itself, political issues throughout the week in Italy kept pressure on markets, and late in the week Spain weighed in with its own political drama. And U.S. President Trump hurt investor sentiment further with his continuing tariff drama and the cancellation of the summit with North Korea. By the end of the week the pan-European Stoxx Europe 600 finished 0.9% lower, snapping an eight week long winning streak. Germany’s DAX retreated 1.1% for the week, and the French CAC 40 lost 1.3%. The U.K.’s FTSE performed somewhat better but still posted a weekly loss of 0.6%.
The coming week will still have political overtones, although things should calm in Italy, now that a Prime Minister has been chosen. The focus at the start of the week could be on Spain instead, where the opposition Socialist party called for a no-confidence vote against Prime Minister Mariano Rajoy late Friday. The U.K. could see a good week, however, as Brexit discussions between the U.K. and Brussels could be harsher than previously thought, which would pressure the Pound lower still. We are also looking for a rebound in commodities in the coming week, which would be positive for the FTSE.
While the U.S. President caused turmoil across global equity markets last week, in his own backyard of the U.S., markets performed better than global counterparts. Perhaps U.S. investors are becoming immune to the sometimes capricious comments coming from the White House. In any case, the S&P 500 managed a 0.3% gain, while the Dow Industrials edged higher by just 0.02%. The Nasdaq clearly outperformed, rising 1.1% for the week on strength from technology. The Nasdaq also benefitted from having little exposure to the energy space, which was the worst performing sector of the week, due to losses from the crude markets.
The coming week will begin slowly, with U.S. markets closed Monday for the Memorial Day holiday. Tuesday features little in the way of economic data, but by Wednesday we should start to see some data. Friday is the closely watched Non-Farm Payrolls in the U.S., and investors won’t just be watching the headline number to see how many jobs have been added; they will likely focus their attention on the wage growth number, as this can provide clues about inflation in the U.S. and the likelihood of seeing more aggressive interest rate hikes from the Federal Reserve.
Gold was flat for most of the week, but a strong gain on Thursday in response to rising geopolitical risks put the precious metal back above the $1,300 level and gave it a 1% weekly gain. Next week will almost certainly see gold testing that $1,300 level once again and, without another risk event, it’s likely we’ll see gold heading lower, as the U.S. dollar continues to strengthen.
Crude finished with a weekly loss for the first time in a month, with WTI crude losing 4.9% and hitting a three-week low at the close, Friday. Traders are now focused on the potential for OPEC and Russia to raise their production by 1 million barrels per day; and, combined with rising U.S. production, we are expecting continued pressure on crude as the new week begins.
|All Day||GBP||Bank Holiday|
|All Day||USD||Bank Holiday|
|29th-3rd||EUR||German Retail Sales m/m|
|09:00||EUR||M3 Money Supply y/y|
|15:00||USD||CB Consumer Confidence|
|22:00||NZD||RBNZ Financial Stability Report|
|01:00||JPY||BOJ Gov Kuroda Speaks|
|02:30||AUD||Building Approvals m/m|
|All Day||EUR||German Prelim CPI m/m|
|08:00||CHF||KOF Economic Barometer|
|08:00||EUR||Spanish Flash CPI y/y|
|09:00||CHF||Credit Suisse Economic Expectations|
|Tentative||EUR||Italian 10-y Bond Auction|
|13:15||USD||ADP Non-Farm Employment Change|
|13:30||USD||Prelim GDP q/q|
|15:00||CAD||BOC Rate Statement|
|15:45||CHF||SNB Chairman Jordan Speaks|
|02:00||NZD||ANZ Business Confidence|
|02:30||AUD||Private Capital Expenditure q/q|
|09:30||GBP||Net Lending to Individuals m/m|
|10:00||EUR||CPI Flash Estimate y/y|
|10:00||EUR||Core CPI Flash Estimate y/y|
|Day 1||ALL||G7 Meetings|
|13:30||USD||Core PCE Price Index m/m|
|13:30||USD||Personal Spending m/m|
|16:00||USD||Crude Oil Inventories|
|17:45||USD||FOMC Member Bostic Speaks|
|02:45||CNY||Caixin Manufacturing PMI|
|09:00||EUR||Final Manufacturing PMI|
|Day 2||ALL||G7 Meetings|
|13:30||USD||Average Hourly Earnings m/m|
|13:30||USD||Non-Farm Employment Change|
|15:00||USD||ISM Manufacturing PMI|