Week of June 5 – 9, 2017

Equities

• The S&P 500 decreased by 0.27% last week after a myriad of geopolitical headlines. Qatar is now being sanctioned by all of its bordering neighbors except Iran, former FBI director James Comey testified regarding his interactions with the president, and the Conservative party lost many seats in the UK’s snap election on Thursday.

Fixed Income

• The 10-year interest rate was slightly up last week, increasing by 4 basis points to 2.20%. This week was very light on economic data, which picks back up next week with CPI on Wednesday.

Currencies

• The euro weakened by 0.74% after the ECB’s meeting on Thursday seemed to mark the end of the dovish tilt of the bank. Policy was left unchanged, but the ECB changed the language of their post-meeting statement to reflect the hawkish shift. The ECB said: “The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.” The statement previously read “remain at their present or lower levels” and the removal of the word lower has many analysts marking this as the beginning of the end for ECB easing.
• The pound was 0.96% weaker after the Conservative party lost many more seats than anticipated in Britain’s snap election on Thursday. PM Theresa May initially called for the election to help give her party a larger majority in parliament in an attempt to strengthen her hand in Brexit negotiations, but the Conservative party ended up losing 12 seats while their opposition, the Labour party, gained 31 seats. The election was an overwhelming defeat for May and her party, and left the Conservatives without a majority in parliament. The party is still the largest in parliament and will now attempt to form a ruling majority with the Democratic Unionist Party of Northern Ireland.

Commodities

• Oil had another large decline last week, falling by 3.84% to $45.83. The majority of the move came after Wednesday’s inventory report. Withdrawals were already priced into the market as most analysts expected inventory withdrawals throughout the summer, similar with normal seasonal patterns. The data showed otherwise, as inventories built by 3.3mn barrels while gasoline inventories built by 4.4mn barrels. One interesting aspect of the report was US production, which declined for the first time since January.

 Economic Data Last Week

 What to Watch for This Week

• The economic calendar is extremely busy this week with inflation, retail sales, and housing data highlighting the releases.
• The Federal Reserve meets on Wednesday and is expected to raise interest rates for the second time this year. A rate increase has been priced into markets for weeks, so the focus will be on the Fed’s dot plot and post-meeting press conference.

Economic Data This Week

Interesting Articles

• Bloomberg: Fired FBI Director James Comey Testifies Before Senate Intelligence Panel
• FT: ECB rules out rate cut but confirms QE until year end
• FT: Theresa May seeks to cling to power with Northern Ireland party
• Ben Carlson: Reframing the Concept of Risk

Disclaimer: All data and comments are as of June 9, 2017