Economic Growth Second Longest Since WWII

Reprieve on Tariffs For Allies

The EU, Mexico and Canada were given a one month (June 1) reprieve on the 25% steel and 10% Aluminum tariffs the Trump administration has threatened to levy.  In addition, agreements were reached with Brazil, Argentina and Australia that will exempt them from the proposed tariffs.  While the tariffs were introduced for “national security” reasons, the EU will argue that reasoning is not justifiable and the EU should be permanently exempt from any such tariffs.  Perhaps the tariffs are part of a broader strategy for negotiations with the May 12th Iran sanctions deadline looming.  In addition, Trump’s delegation, including Treasury Secretary Mnuchin, will be in China this week to address the growing rift on trade.  While these are positive steps, the uncertainty created and the effect on the market can not be overlooked. 

 

FOMC Meeting Begins

With the FOMC meeting starting today, the Committee members are mindful that we’re currently in the second longest period of economic expansion post WWII, albeit one with some headwinds.  The growth of the economy has been relatively subdued coming in at an average of 2.2%, the lowest of any expansionary period since the end of the Second World War.  The 2% target for inflation as part of the FOMC’s dual mandate remains paramount, especially with the recent PCE data showing the target may finally be in striking distance.  While the number of jobs has been increasing, generally speaking wage growth is still lagging.  The Fed is not expected to raise rates at this meeting or stray from the gradual approach to raising rates given the current state of the economy, as there seems to be room for further growth before a more aggressive strategy around monetary policy would need to be considered.

 

Stocks Mixed

Major US stock indices were mixed on the day while Tech shares edged higher off the back of anticipation of strong earnings from Apple, while industrials were lower on the news that production was weaker than expected.  The Nasdaq led the way higher posting a 0.91% gain, while the S&P 500 finished up 0.25%.  The DJIA was the lone index down the on the day falling 0.27%.  US Treasurys sold off throughout the trading session, as yields/swap rates increased 1-2bps across the curve, bringing the 10-year note yield close to 2.97% as of the close.  The US Dollar rallied today versus both the Euro and the Pound, up 0.7% and 1.1% respectively.  Crude Oil Futures sold off on an anticipated stronger dollar, falling 1.7% to $67.43 a barrel.