Weekly Market Update

Author : Laura Hochstetler
Date : July 13, 2019

Market Action

Global equities were firmer on the week as major US indices reached record highs, with both the S&P 500 Index and the Dow Jones Industrial Average marking new milestones above 3,000 and 27,000, respectively. The yield on the US 10-year note rose 18 basis points from last week, to 2.13%, and European yields rose in similar fashion as markets unwound overly bearish bets on the global economy. The price of a barrel of West Texas Intermediate crude oil rose 50 cents to $60.20 while volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), declined to 12.7 from 13 last week.

In his semiannual testimony on Capitol Hill this week, US Federal Reserve Chairman Jerome Powell signaled the central bank is ready to cut interest rates later this month to cushion the U.S. economy against the risks of slower global growth and trade-policy uncertainty. Futures markets anticipate at least a quarter-point cut in the fed funds rate and place about a 20% probability of a half-point cut. Odds of a larger cut receded in the wake of last week’s very strong US employment report.

Negotiators from the United States and China resumed trade negotiation by phone this week, but they have yet to set a time to resume talks face to face, though White House trade hawk Peter Navarro said a US delegation will travel to Beijing “soon.” US President Donald Trump expressed frustration with China on Thursday, saying the country has let the US down by not following through on promised purchases of US agricultural products.

Greece’s center-right New Democracy Party won an outright majority in Sunday’s general election. Investors welcomed its market-friendly policy mix.

Turkish President Recep Tayyip Erdogan dismissed the governor of Turkey’s central bank, sending the lira lower. Local press reports indicate that Murat Cetinkaya was ousted for failing to implement interest rate cuts ordered by Erdogan.

Hong Kong’s chief executive, Carrie Lam, said that the contentious extradition bill that sparked sometimes violent protests in the semiautonomous region is “dead” and took responsibility for what she called a total failure.

Mexican Finance Minister Carlos Urzua resigned on Tuesday, citing many disagreements over economic policy with President Andres Manuel Lopez Obrador, including fears that government policy may undermine financial stability.

What Could Affect the Markets in the Days Ahead

Analysts are forecasting an earnings recession, with a second straight quarter of declining earnings per share forecast for S&P 500 companies. Q1 earnings dipped 0.3%, and heading into Q2 earnings season analysts’ estimates forecast a 2.8% drop.

Tensions in the Persian Gulf region remain high as a British warship escorting a tanker through the Strait of Hormuz on Wednesday was forced to turn its guns on three Iranian gunboats that were attempting to impede the tankers passage. This is the latest instance of interference with shipping in the gulf by Iran and its proxies. The Wall Street Journal reported that the incident could spur US efforts to build a coalition to share the burden of protecting commercial vessels near Iranian waters.

A new estimate this week suggested that the US government could run up against its debt ceiling by early September, prompting Speaker of the US House of Representatives Nancy Pelosi to call for legislation to raise the limit before the August recess. So far, negotiations between the White House and the Democrats on Capitol Hill have not been able to bridge a divide over discretionary spending levels.