June Trading Opens With Tariff Tensions, Expectations For Fed Speakers, Jobs Data

With a bevy of Fed speakers on tap and jobs data scheduled, this week could give market participants something to focus on other than tariffs, but for the moment trade concerns remain center stage as the first trading session of June gets under way.

China fired the latest rhetoric volley, saying that the United States was to blame for trade talks falling through last month. It was the latest drumbeat in a long saga that has weighed on markets, with fears about global growth escalating last month as the faltering U.S.-China negotiations raised worries about a protracted trade war and President Trump threatened Mexico with duties.

Trade worries sparked a selloff in stocks and buying in U.S. government debt as investors searched for relatively safe investments at the expense of riskier ones, a trend that seems like it will continue into this month’s opening trading. 

As investors looked for safety, Treasury yields kept falling this morning as investors bought government debt. Meanwhile, gold, which is also considered a safe-haven investment, rose in price. 

Fed In Focus

Later this week, the market is scheduled to have something else besides tariff tensions to focus on as Federal Reserve officials meet at a conference in Chicago. Board of Governors Chair Jerome Powell and Vice Chair Richard Clarida are scheduled to speak, and Chicago Fed President Charles Evans is also scheduled to give introductory remarks.

This week, the Fed is also scheduled to release its Beige Book for June. These publications include anecdotal information on current economic conditions in each of the Fed districts.

Market participants are likely to pay close attention to the Fed speakers and the Beige Book for clues on the central bank’s thinking on monetary policy. Investors are likely to be particularly interested if the Fed says anything that could hint at interest rate trajectory this year, as some are increasingly thinking that policy makers could cut rates this year.

Later this morning, we’re scheduled to see the ISM Manufacturing Index for May, which a Briefing.com consensus expects to come in at 52.6.

We’ll also get automobile sales numbers for May later in the day. The auto sector is expected to take a hit if Trump’s tariffs on Mexico go into place. It could be interesting to see how sales fared in the month before the duties are set to go into place.

Jobs Data on Tap

On the last day in the week, the market is scheduled to get the government’s monthly reading on non-farm payrolls. A Briefing.com consensus expects nonfarm payrolls to come in at 170,000 and average hourly earnings to increase by 0.3%.

You may want to consider watching average hourly earnings, as they are a key component in inflationary expectations. If you’ll recall, the report from April came in stronger than a Briefing.com consensus expected from a headline jobs creation perspective, but monthly average hourly earnings were a little shy of a Briefing.com consensus expectation. That left yearly average hourly earnings unchanged from the March report.

In corporate earnings, Tiffany & Co. TIF is expected to release its quarterly results this week. The company can be interesting to watch for those looking to keep their finger on the pulse of the health of the wealthy consumers of the world.

Tiffany products aren’t considered consumer staples that people need to buy no matter what the economy is doing. So it’s a good sign if consumers are feeling good enough about the economy and their job prospects to splurge on luxury goods. However, a slowdown in travel could lead to a slowdown in sales at the company’s iconic New York store.

Last week, we saw the latest consumer confidence survey from the Conference Board coming in stronger than expected. A consumer sentiment reading from the University of Michigan came in weaker than expected, but still showed that consumer sentiment was favorable overall. (See more below)

The numbers offer bright spots for the U.S. economy amid the threat of a protracted trade war with China because the U.S. consumer is expected to foot the bill.

Figure 1: Equities took it on the chin in May as trade worries escalated. Here’s a look at how the S&P 500 Index (SPX) did. Data Source: S&P Dow Jones Indices Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  
Consumer Sentiment: The tariff situation does seem to be concerning the U.S. consumer somewhat, but overall consumer sentiment remains at healthy levels. The University of Michigan’s final consumer sentiment index came in at 100 for May compared with a 101.5 reading expected in a Briefing.com consensus. “Although consumer sentiment remained at very favorable levels, confidence significantly eroded in the last two weeks of May,” the university said. It’s an interesting signal, coming after preliminary consumer confidence data, which came in stronger than expected, from the Conference Board. The cutoff for that data was May 16, well after the breakdown in U.S.-China trade talks earlier in the month. But it seems like the university data showed a worsening of sentiment as the month wore on, something stock market investors would probably agree with.

Inflation Picks Up: Last week, the market got a look at the Fed’s preferred measure of inflation. The core price index for personal-consumption expenditures in April registered 0.25% growth. The Wall Street Journal called that rise “robust” and said “the reading could reinforce the Fed’s view that a slowdown in inflation earlier in the year was temporary and shift central bankers’ concerns to other economic risks, including the possibility of the U.S. imposing tariffs on goods from Mexico.” On the one hand, it would seem like the rising inflation data would make central bankers less likely to lower rates later this year. But, on the other hand, if the global trade issues start to dent GDP meaningfully, the Fed might feel the need to get increasingly dovish.

Lowered GDP Estimate: Speaking of GDP, the latest GDPNow forecast from the Atlanta Fed decreased on Friday. The model estimate for real seasonally adjusted annual GDP growth in Q2 slid to 1.2% from 1.3%. “A decline in the nowcast of second-quarter real nonresidential equipment investment growth from 0.7 percent to -1.4 percent” helped bump the headline number lower, the Atlanta Fed said. We’ll have to wait until July to see the government’s official first estimate of Q2 GDP.

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