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Ivan Gruhl, Chief Investment Officer, HK Financial Services

Overview: Stocks rebounded across the globe last week led by a rally in the U.S., where the S&P 500 had its best gain on Tuesday since January. The S&P 500 index finished up 4.5% for the week, followed by international developed stocks (MSCI EAFE, up 3.2%), and MSCI EM (up 1%). Bond yields fell with the 2-year Treasury down 9bp in yield to 1.85%, and the 10-year down 6bp to 2.08%, levels not seen since 2017. Bond yields have reacted to softer economic data, and yields have trended lower given the expectation in the markets of the Federal Reserve easing interest rates. Last week, Fed Chairman Powell stated that the central bank will “act as appropriate to sustain the expansion,” and other Fed officials indicated a willingness to reduce interest rates to sustain economic growth in the face of increasing trade tensions.

Friday’s unemployment report was disappointing with employers adding just 75,000 jobs vs. the consensus of 180,000. In addition, the past two months data were revised downward another 75,000. From a market standpoint, investors cheered the news on the assumption that weaker job growth will support the lowering of interest rates by the Fed. Trade tensions are beginning to show their effect as both the Global PMI manufacturing and services indexes fell to multi-year lows. The decline in these two indices reflects a slowing in economic activity across geographies and sectors globally.

In Europe, the European Central Bank (ECB) continued to signal an easy rate policy path stating that rates will remain unchanged “at least through the first half of 2020.” The ECB remains committed to providing monetary stimulus in the face of slowing growth.

Looking forward: Next week the Fed will meet Tuesday and Wednesday with any rate decision announced on June 19. Later in the month, the G20 summit will take place in Japan. President Trump has indicated he will wait until after this month’s G20 meeting to decide on extending tariffs, and U.S. and Chinese officials are expected to meet during the G20 to discuss the terms on which to restart trade discussions.

 

This communication is for informational purposes only. It is not intended as investment advice or an offer or solicitation for the purchase or sale of any financial instrument.

Indices are unmanaged, represent past performance, do not incur fees or expenses, and cannot be invested into directly. Past performance is no guarantee of future results.  8638037