Investors Get a Closer Look at Global Economic Growth
At the top of the list of concerns is, of course, the trade war with China. At present, there are no further discussions scheduled, although both sides say they are open to them. Optimists are pointing toward the G-20 meeting on June 28-29 in Osaka, Japan as a possible, perhaps likely opportunity to resolve differences and announce an agreement, but that would appear to be wishful thinking. The way forward is unclear. The latest round of tariff increases by both sides are set to take effect at the end of the week. And the legal process to enable the expansion of tariffs to an additional $300 billion of Chinese imports has been set in motion and could be complete just prior to the Osaka summit. The president said last Thursday that a deal could happen fast, but on Monday said the U.S. was not ready to make a deal with China. For its part, China says it is preparing for another “Long March,” in reference to events leading up to the establishment of communist rule in China, while ratcheting higher its anti-U.S. rhetoric.
Is Support for the President’s Trade Tactics Waning?
The president has enjoyed bi-partisan support in prosecuting his trade war with China, but fissures may be beginning to appear in the foundation of that support. A poll released last week by Quinnipiac University showed a decline in support for the president’s handling of trade in general and our relationship with China in particular. Only 39 percent of the voters polled approved of the president’s handling of trade issues, down from 42 percent in January, while 40 percent approved of his handling of China relations, down from 44 percent in January. Those same voters, however, characterized the economy as the best in eighteen years.
But, with the notable exceptions of strength in jobs and consumer confidence, second quarter economic data has been on the soft side. The Atlanta Fed’s GDPNow model is currently forecasting second quarter GDP of just 1.3 percent. The data overseas has been even worse. And both the International Monetary Fund (IMF) and National Bureau of Economic Research have published reports concluding that American importers and consumers are bearing the brunt of the tariffs, not Chinese exporters as the president asserts. For both businesses and consumers alike, it is a lot easier to support a trade war if the economy is growing more than 3 percent than if it is growing at less than 2 percent. Bond markets took note of the weaker tone and pushed yields lower. The yield on the ten-year note ended the week at 2.32 percent, down from 2.39 percent the week prior. In early trading on Tuesday this week, the yield is down to 2.29 percent, its lowest in almost two years. The curve between the three-month bill and the ten-year is now inverted by six basis points.
Eurozone Markets Respond Favorably to Election Prospects; Investors Keeping an Eye on Economic Data
While U.S. markets were closed in observance of Memorial Day, overseas markets were open, except for the U.K. Asian shares were mostly higher and stocks in the Eurozone rose following elections for the European parliament that showed pro-EU parties attracting most of the support, despite notable gains by populist parties, especially in Italy where the EU has threatened penalties over its fiscal management. European stocks are mostly lower in early trading on Tuesday, however, despite improvement in sentiment readings. U.S. futures are pointing toward a lower opening as well.
On this week’s economic calendar, first quarter U.S. GDP is expected to be revised slightly lower from the 3.2 percent advance estimate, as trade and inventories were particular influences that could be adjusted. Personal income and spending in April is scheduled, as are reports on consumer confidence and sentiment. Later in the week, China will report its PMIs for May and manufacturing activity is expected to fall back into contraction.
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