Week from 10 to 16 June 2019
Stock indices continued to gain ground around the globe though investors remain cautious ahead of the Federal Reserve meeting scheduled on 18-19 June. Optimism is fueled by the prospect of interest rate cuts this year but there is little expectation of a first move next week. Volatility eased again (CBOE VIX index down 6.26%) as the Trump administration stepped back from an immediate imposition of tariffs on Mexico and retail sales data in May showed a pick-up in consumer spending. Furthermore, Beijing decided to ease restrictions on local governments borrowing to boost infrastructure investment.
Asian markets took the lead (Shanghai Composite and Nikkei up 1.92% and 1.11% respectively) despite massive and historic street protests in Hong-Kong against a proposed extradition bill that has stoked fears of expanding control from China. Wall Streets major indices edged up (S&P500: +0.47%, DJIA: +0.41%, Nasdaq: +0.70%) and the same was true for Europe, though to a lesser extent (MSCI EMU: +0.14%, FTSE100: +0.19%).
Most sectors finished the week into positive territory. Consumer discretionary was the best performer (+2.44%) followed by utilities (+1.18% – once again defensive sectors fared well), communication services (+1.12%) and information technology (+1.07%).
Going against the trend, industrials (-0.43%) and energy (-0.51%) lagged the market. In this regard, it is worth noting that oil prices fell to five-month lows (WTI down -2.74% at $52.51 a barrel) despite their end-of-week rebound after suspected attacks on two tankers in the Gulf of Oman. All the evidence suggests that high U.S. crude inventories and a bleak demand outlook are dragging down prices.
The 10-year U.S. Treasuries yield was unchanged at 2.09% like the German Bund at -0.26%. The 3-month U.S. T-bill dipped slightly from 2.28% to 2.20%, its lowest level since September 2018. Emerging debt and high-yield bonds moved up 0.94% and 0.24% (in the U.S.) respectively.
Lastly, gold was still near 14-month highs at around $1,340/oz.