Headlines were quiet last week with major market indices mostly flat. Market participants appear to be holding their breath for any movement on the US-China trade dispute and any clarification of Fed policy that can be gleaned from this week’s meeting. Between the US and China, both appear to be doubling down with no indication of compromise or concession, at least not publicly.
Fed Chair J. Powell’s opening conference remarks on June 4 reassured the public that the Fed “will act as appropriate to sustain the expansion”[1]. The remark was interpreted by market participants as a dovish turn, supporting the market’s pivot to an increased chance of a rate cut rather than rate hike for 2019.
Trade wars now seem to be a standard negotiating tactic for foreign policy. While the dispute with China remains unresolved, Trump now is targeting Mexico with an initial 5% tariff on all imports to the US The tariffs are slated to start June 10 with planned increases of 5% per month until reaching a 25% level.
The US-China trade dispute continues to dominate headlines. US Large Cap Stocks (as measured by the S&P 500 Index) fell nearly 4.5% after the original tariff comments, started to recover but dropped back down near the 2800 level. Emerging Markets (MSCI Emerging Markets Index) fared much worse, falling nearly 9.0% through last Friday
Last week’s market news was dominated by Trump threatening additional tariffs from 10% to 25% on $200B of Chinese goods.1 Both sides left D.C. last Friday without a resolution and the public left only with U.S. Treasury Secretary Mnuchin’s intentionally vague comment that discussions were “constructive.”2 Trump’s threat proved legitimate, with the increase taking effect last Friday. In response, China has now announced raising tariffs on $60B of U.S. products from previous 5%-10% levels to 25% to match, which are scheduled to begin June 1. The next public opportunity for negotiation will be the G20 summit in Osaka June 28 and the lingering dispute will continue to remain a known unknown.