U.S. set to remove waivers on Iran oil imports. Find out more in this edition of “The Week in Review.”
Last Week Review
Modest gain for global equities driven by the U.S. Global equities returned 0.4% last week with the U.S. as the only major equity region in positive territory1. Following the modest gain, global equities are up 15.9% year-to-date, led by an 18.5% return in the U.S. and healthy double-digit returns in non-U.S. developed markets and emerging markets2. Reviewing the fixed income markets, the 10-year Treasury yield dipped to 2.50% after the positive U.S. GDP print (see below)3. Despite the surprise, weakness in consumer spending may have contributed to the market’s expectation of lower growth.
U.S. set to remove waivers on Iran oil imports. Last year, the U.S. reinstated sanctions on Iran (in a Trump administration reversal of an Obama administration deal with Iran), but allowed waivers for some nations (including China). These waivers are now scheduled to end4. Crude oil prices responded to the news of expected lower future supply by jumping 2.9% on Monday, but finished mostly flat over the last week. Oil prices are now around 35% higher than the start of the year5. This U.S. policy decision, combined with other supply disruptions (Venezuela, Libya) could eventually lead to higher oil prices over the course of 2019 if other sources don’t fill the supply6.
U.S. GDP grows 3.2% higher in first quarter. The global growth picture was mixed last week with U.S. GDP reporting well above economist surveys. Volatile GDP components, trade and inventories, offset weakness in consumer and business spending. Meanwhile in Germany, business outlook surveys fell below expectations and the prior month’s reading. Investor concern over slowing global growth in 2019 has been a theme since the middle of 2018. To support growth, central banks around the world have committed to accommodative policies by placing a hold on future interest rate hikes. The Bank of Japan, which met last Wednesday, committed to leaving its main policy rate unchanged through the spring of 20207.
Caterpillar beats expectations but faces cost pressures. Despite profit and revenue beats in the first quarter, investors expressed concerns on the news that Caterpillar’s (CAT) construction equipment sales decreased in every region except North America. Cost pressures relating to labor, capital and tariffs were affecting the company’s ability to compete in China. CAT expects tariffs to impact its second quarter results, but dwindle in the second half of the year8. So far, 230 S&P 500 companies (46%) have reported earnings growth of 2.0% year-over-year (y/y) and sales growth of 3.7% y/y9. Earnings growth remains ahead of consensus expectations while revenue growth is very close to expectations.
This Week Preview
Tech-focused earnings week ahead. Companies focused on technology will hold investors’ attention this week with Alphabet (GOOGL) and Apple (AAPL) reporting earnings on Monday and Tuesday, respectively. The tech sector has barely any earnings growth compared to the year prior. However, technology’s roughly flat earnings are still above consensus expectations. Other companies highlighted this week include General Electric (GE), McDonald’s (MCD), Pfizer (PFE) and Merck & Co. (MRK)10.
No policy change expected in Fed meeting. The Federal Reserve meets this Wednesday with little expectation for a policy change. In economic data this week, February’s delayed core Personal Consumption Expenditures (PCE) reading will be released on Monday. Economists expect the number to fall short of the Fed’s 2% target as it has for much of the last decade. The continued shortfall may motivate the Fed to reconsider how it targets inflation. A move to aggressively aim above the 2% target will likely require a reduction to the Fed funds rate. Markets are now assigning a 66% probability of an interest rate cut by the end of 2019.
Jobs added figure expected to remain near the 3-month average. The U.S. labor market is expected to remain strong, with surveys expecting April’s jobs added figure to reflect 185k new jobs. Wage growth is expected to remain unchanged at 3.2% y/y, while the unemployment rate is also expected to remain stable at 3.8%.
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Unless otherwise noted, all opinions expressed in this post are those of the author and do not necessarily represent the views of Northern Trust. Information contained herein is current as of the date appearing only and is subject to change without notice.
- 1) Bloomberg, MSCI ACWI (All Country World Index) returns 22Apr2019 – 26Apr2019. MSCI U.S. Equities IMI Index returns 22Apr2019 – 26Apr2019.
- 2) Bloomberg, MSCI ACWI (All Country World Index) returns 02Jan2019 – 26Apr2019. MSCI U.S. Equities IMI Index returns 02Jan2019 – 26Apr2019. MSCI World ex-U.S. 02Jan2019 – 26Apr2019. Bloomberg, MSCI Emerging Market Equities Index returns 02Jan2019 – 26Apr2019.
- 3) Bloomberg, 10-Year Treasury Rate 22Apr2019-26Apr2019.
- 4) Euronews. Da Silva Marques, Joao Vitor & Sanfor, Alasdair. China opposes US sanctions strategy and says bilateral cooperation with Iran is legal. Retrieved on 29Apr2019 from https://www.euronews.com/2019/04/22/china-opposes-us-sanctions-strategy-and-says-bilateral-cooperation-with-iran-is-legal
- 5) Macrotrends WTI Crude Oil Proces- 10 Year Daily Chart. Retrieved on 29Apr2019 from https://www.macrotrends.net/2516/wti-crude-oil-prices-10-year-daily-chart
- 6) Euronews. Da Silva Marques, Joao Vitor & Sanfor, Alasdair. China opposes US sanctions strategy and says bilateral cooperation with Iran is legal. Retrieved on 29Apr2019 from https://www.euronews.com/2019/04/22/china-opposes-us-sanctions-strategy-and-says-bilateral-cooperation-with-iran-is-legal
- 7) CNBC Imbert, Fred. US economy grows by 3.2% in the first quarter, topping expectations. Retrieved on 26Arp2019 from https://www.cnbc.com/2019/04/26/gdp-q1-2019-first-read.html
- 8) Yahoo Finance. Thomson Reuters Street Events. Edited Transcript of CAT earnings conference call of presentation 24-Apr-19 3:00 PM GMT. Retrieved on 26Apr2019 from https://finance.yahoo.com/news/edited-transcript-cat-earnings-conference-020918355.html
- 9) Thomson Reuters. S&P 500 Earnings Dashboard. Retrieved 29Apr2019 from http://lipperalpha.financial.thomsonreuters.com
- 10) Thomson Reuters. S&P 500 Earnings Dashboard. Retrieved 29Apr2019 from http://lipperalpha.financial.thomsonreuters.com
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