It’s a week of anticipation ahead of the meeting between Presidents Trump and Xi at G-20. Before that, we hear results from companies including homebuilders and Nike.
Figure 1: COMMODITY COMEBACK STILL EARLY: It’s tempting to look at what copper (candlestick) and crude (purple line) have done the last week or two and talk about a comeback for beaten-down commodities. If that’s happening, though, both have a ways to go to catch up to where they were earlier this year, as this six-month chart demonstrates. Data Source: CME Group. Data Source: CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Full Basket of Numbers: The final week of the quarter is packed with economic data following last week’s signs of life in the housing market. The most recent data—existing home sales for May released Friday—came in a bit higher than analysts had expected and up month over month. Sales were still down slightly from a year ago, but it looks like lower mortgage rates might be sparking some home-buying activity. The median home price rose nearly 5% in June to another record high, and lower rates might be driving some people to buy more house than they would have maybe six months ago.
There’s more housing data this week, with new home sales for May due on Tuesday. Thursday brings the government’s third estimate for Q2 gross domestic product (GDP). It was last seen at 3.1%, but that’s a trailing indicator, and many people might be more focused now on a first look at Q2 GDP due in late July. University of Michigan sentiment and durable goods are among the other reports market participants might have their eyes peeled for as the week advances. Monday, however, brings no major new numbers.
Strange Days, Indeed: On the face of things, this is a slightly odd-looking market. We have stocks making new record highs even as 10-year Treasury yields sink to their lowest levels since late 2016 and gold touching its highest point since 2013. The Treasury market remains inverted. In other words, investors are embracing risky assets (stocks) and at the same time running away from risk, it seems.
One analyst speaking on CNBC recently said this might not be as out of sync as it sounds. He noted that if you look at what’s led the stock market over the last nine months or so, it’s the “defensive” sectors like Utilities, Health Care, Staples, and Real Estate, all of which tend to do better in cautious times. Last week saw a slight change in that, with more strength in the so-called “cyclicals” like Energy, Financials, and Technology, all of which often do better in a booming economy. Technology is the second-leading sector this month. It’s unclear if this is a temporary trend or has any staying power, but it could be key to whether the broader rally continues. That’s because some analysts believe defensive sectors look a bit overbought and might face some profit taking.
Do-It-Yourself Crude Supplies: The counter to the crude price run-up is that the U.S. is a lot less dependent on Middle Eastern oil than it was, say, going into the 2003 Iraq war. At that time, U.S. daily crude production was around 5.8 million barrels, according to the U.S. Energy Information Administration (EIA). That compares with average U.S. production recently above 12.2 million barrels a day. Also, U.S. imports are down moderately from 2003. Back then, U.S. daily imports of crude averaged between 8 million and 10 million, compared with 6 million to 7 million barrels a day now.
This home-grown supply and less dependence on imports potentially could give the U.S. a bit of padding against any possible blockage of crude coming out of the Persian Gulf. Still, a situation where crude can’t make it to markets might pose a serious threat to China and Japan, which source much of their oil from the Middle East. Remember, too, that there already are some supply issues in oil-producing countries like Venezuela and Libya, and a Persian Gulf skirmish could exacerbate the impact of those shortages. As we’ve seen in recent years, China’s economy can drag down others if it starts having issues, and an oil shortage would be a serious threat to China’s growth. That means the U.S. having bigger crude supplies of its own won’t necessarily allow it to escape economic impacts from tangling with the Islamic Republic.
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Economic calendar for week of June 24. Source: Briefing.com
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