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Weekly Market Update for June 8, 2018

by JM Hanley

The Dow was up on Friday, rising 75 points to close at 25,317. For the week, the Dow rose 2.8% (SP500 +1.6%) and year-to-date is now up 2.4% (SP500 +3.9%). The yield on the 10-year Treasury (an important interest-rate indicator) rose six basis points and closed at 2.95%.

June is off to a sleepy start. Tax cuts and deficit spending have put wind in the economy’s sails. Stock buybacks and M&A have amplified these tailwinds in equity markets. With the corporate rate cut nearly in half, steeper valuations have thus far been supported by sustained earnings growth. The Administration’s newly hawkish approach on trade is a source of constant sound and fury. But while investors must adjust to day-to-day uncertainty, most doubt a trade war between the world’s largest economies will break out.

The price of crude was unchanged this week near $66 a barrel – up 9% YTD. US crude stockpiles showed a surprise build, of 1.5m barrels, and product inventories of gasoline (+4.6m bls) and diesel (+2.2m bls) both rose. Crimping oil prices was the inventory report as well as rising concern that OPEC may introduce plans at the June 22 meeting for a gradual unwinding of its production cuts. Some reports suggest a US government request – that OPEC increase production by one million barrels per day, to ease rising gasoline prices – may be partially behind any shift of course by members.

These headwinds were offset by the downwardly spiraling situation in Venezuela. Shipping port bottlenecks and declining production have prevented the country from upholding some June export commitments, and may spur a controversial declaration of force majeure on contracts.

Next week will be as busy as this one was quiet. On Tuesday morning, President Trump and Kim Jong-Un, North Korea’s leader, will meet in Singapore. Later that day, a federal judge will issue a decision determining whether or not the proposed merger of AT&T and Time Warner can proceed. The Federal Reserve will decide whether or not to raise interest rates on Wednesday. A new projection of future rate hikes is also expected.

The next day, their European counterparts will meet for the same purpose. Chairman Draghi will answer questions about Italy’s new Euroskeptic government and the ECB’s plans to reduce its holdings of member government’s bonds. Thursday will also bring a raft of data on consumer spending and capital investment in China.

America’s trade office will release a list of Chinese goods subject to the newly-imposed tariffs the day after that. Not to be outdone, the Bank of Japan will also issue its decision on domestic interest rates on Friday. And at some point during the week, the Administration will hold a press conference at which the leaders of several pharmaceutical companies will announce voluntary reductions in drug prices.

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