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Weekly Feed Mins Read

Kristal Weekly Feed | 3rd June 2019

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Got only 15 seconds? Here’s what you need to know.

Below is a succinct summary of major global events that transpired last week.

Positives

1. Q1 GDP at 3.1% better than wall street estimates
2. US inflation rises in April as consumer spending decreases
3. Gold prices at a 3 week high as Safe haven assets demand increases

Negatives

1. Trump’s tariffs lead to a decline in treasury yields
2. S&P 500 delivers worst May return in seven years falling 6.6%
3. Oil prices down 16% in May, as Trump Tariffs on Mexico, hit hard

Now for more detail.

 

Positives 

1. Q1 GDP at 3.1% Better than Wall Street Estimates

What You Should Know

The U.S. economy grew by 3.1% to start the year better than 3% forecast, but lower than the initial projection of 3.2%. The decrease came due to falling nonresidential fixed and private inventory investment. Corporate profits also weakened, falling 2.8% across all companies and 0.5% in the S&P 500. Exports rose 4.8% while imports declined by 2.5%.

What You Should Lookout For

In the bigger picture, growth easily surpassed what economists had been expecting at the start of the year at just 0.2%. Second-quarter growth is expected to decline significantly at 1.8%, while the Fed’s projection is for just 1.3%.

Suggested Reading

First-quarter economic growth up 3.1%, slightly better than Wall Street expected

 

2. US Inflation Rises in April as Consumer Spending Decreases

What You Should Know

U.S. consumer prices increased in April, that could allow the central bank to keep interested rates unchanged for a while. Personal consumption expenditures (PCE) price index increased by 0.3% last month after rising 0.2% in March. In the 12 months through April, the so-called core PCE price index increased 1.6% after rising 1.5% in March. Consumer spending, that accounts for more than two-thirds of U.S. economic activity, rose only 0.3% as consumers spent less on services, including household electricity and gas.

What You Should Lookout For

Real consumer spending rose 0.9% in March and remained constant in April, that suggests slower economic growth in the second quarter. Consumer spending increased at a 1.3% annualized rate in the first quarter, the slowest in a year. Low inflation along with slowing economic growth has led to calls for the Fed to cut rates. However, the Fed kept rates unchanged and signalled little inclination to adjust monetary policy anytime soon.

Suggested Reading

US inflation picks up in April as spending slows

 

3. Gold Prices at a 3 Week High as Safe Haven Assets Demand Increases

What You Should Know

Gold prices rose 0.8% Friday to $1297 a troy ounce amid news of unexpected 5% tariffs on Mexican goods and Sino-U.S. trade tensions. This level has not been seen since May 15. Silver futures advanced 0.1% at $14.512 a troy ounce.

What You Should Lookout For

Trump said Washington will place a 5% tariff on all Mexican exports to the U.S. beginning on June 10 and that the levies could increase to 25% by 1st October if the country does not work to stop the flow of immigrants across the border. Investors should watch out for how this affects the equity markets and safe haven assets.

Suggested Reading

Gold Prices Head Towards $1,300 as Trump Tariffs Boost Safe Havens

 

Negatives

1. Trump’s Tariffs Lead to Decline in Treasury Yields

What You Should Know

U.S. government debt yields declined after Trump’s new tariff threats on all Mexican imports took investors by surprise and aggravated an already-stressed U.S. trade outlook. The yield on the benchmark 10-year Treasury note was lower at around 2.135%, off a fresh 20-month low around 2.125% hit earlier in the session. The 2-year rate dropped 13bp to 1.926%, it’s the lowest level since January 2018.

What You Should Lookout For

The S&P 500  down 6.6% this month tracked a 34 bp drop in the 10-year Treasury rate, that inverted a portion of the yield curve. Such inversion is seen as a recession indicator. The decline in the yields came after Trump said that he will impose a 5% tariff on all Mexican imports starting June 10 if Mexico doesn’t take unspecified steps to shore up the border.

Suggested Reading

US 10-year yield collapses to 2.13% as Trump’s surprise Mexico tariffs stoke recession worries

 

2. S&P 500 Delivers worst May Return in seven years falling 6.6%

What You Should Know

S&P 500 has delivered its worst May return in seven years and second-worst since the 1960s, falling 6.6%. All but one of the 11 S&P 500 groups fell, with real-estate shares getting a boost as the 10-year Treasury yield dropped to a 20-month low. Unlike, S&P 500, VIX hasn’t bounced much since November.

What You Should Lookout For

The sell-off in U.S. stocks may get uglier as Trump’s trade war escalates at a time when the market is far from cheap. Technical support levels cracked as the S&P 500 sank through its 50-, 100- and 200-day moving averages for the first time in months.

Suggested Reading

S&P 500 Wipes Out $4 Trillion in Its Second-Worst May Since ‘60s

 

3. Oil Prices Down 16% in May, as Trump Tariffs on Mexico Hit Hard

What You Should Know

WTI was down $3.09, or 5.5%, at $53.50 per barrel on Friday, whereas.Brent lost $2.40, or 3.6% to close at $64.47. For the month of May U.S. crude fell 16% while its U.K. peer lost 11%. Both benchmarks broke below all key moving-day averages in the past week, including the lowest 5-day moving average. However, crude oil inventories decreased by just 0.28 million barrels compared to a forecast draw of 0.86 million barrels.

What You Should Lookout For

Mexico sends 600,000 to 700,000 barrels of oil to the United States every day and buys more than 1 million bpd of U.S. crude and fuel, that’s the maximum by any more country. The tax on Mexican imports could disrupt a cross-border energy trade, hitting U.S. refiners that use Mexican oil.

Suggested Reading

Oil Down 16% in May, Most in 6 Months as Trade Wars Hit Hard

Disclaimer

The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.

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