This "Markets Weekly" video summarizes the key events impacting the stock market during the week of June 7th, focusing on both unexpected, "random" events and more concrete economic data and policy decisions.
The speaker begins by highlighting the S&P 500's surge past 6,000, attributing the week's market movements to a combination of headline-grabbing incidents and fundamental data releases. He divides the discussion into "random stuff" and "bit of butter stuff," encompassing data, tariffs, and central bank actions.
Three "random events" are identified:
1. **Ukraine's Drone Attack on Russia:** The week started with news of a successful Ukrainian drone attack deep inside Russia, targeting sensitive military assets. This event escalated tensions and hinted at a potentially worsening Russia-Ukraine conflict. A reported call between Presidents Trump and Putin reinforced the impression that the conflict would continue, with Putin hinting at a strong response. This future military response is seen as a potential risk-off event for the markets.
2. **Tariff Chatter:** President Trump considered raising aluminum tariffs to 50%, primarily impacting imports from Mexico and Canada. There were also rumors of the White House seeking final trade offers from other countries, possibly consolidating them into the tariff discussions. Although the speaker expressed skepticism about the impact and direction of the tariff initiatives, President Trump engaged in a call with President Xi of China to address concerns about slow-walking of rare earth exports affecting U.S. manufacturing. The call yielded a positive outcome, with China reportedly loosening export restrictions, and a potential in-person meeting between the two presidents planned.
3. **Musk-Trump Spat:** A surprising public disagreement between Elon Musk and President Trump emerged, with Trump suggesting he might pull federal contracts from Musk's companies and making bold accusations. This dispute negatively affected Tesla's stock price and, more broadly, raised concerns about the rule of law in the U.S., as it seemed like government interference in a private company. The speaker expressed hope for a reconciliation, noting the cyclical nature of Trump's relationships.
Moving onto the more concrete economic developments, the speaker discussed:
* **The Jobs Market Report:** The non-farm payroll report came in slightly better than expected, but a closer look reveals a clear trend of deceleration in job creation, which is considered normal given the moderating economy and reduced immigration. Despite positive aspects like better-than-expected wage growth and an unchanged unemployment rate of 4.2%, the market reacted strongly, with stocks, bond yields, and the dollar all surging. The market is pricing in fewer than two interest rate cuts for the year, suggesting many investors were prepared for a weaker report. The labor market is moderating but not collapsing, although the unemployment rate is gradually increasing.
* **New York Fed Tariff Study:** A study by the New York Fed surveyed companies in the New York City area to gauge their reaction to tariffs. The findings indicate that most companies are passing through tariffs to consumers, either partially or entirely. Some companies are also buying more American products to avoid tariffs, benefiting domestic producers. The long-term impact will depend on whether the tariffs are perceived as temporary or permanent. The study also revealed that some companies are using the opportunity to raise prices on goods not directly affected by tariffs.
* **ECB Meeting:** The European Central Bank (ECB) lowered interest rates and suggested they were nearing the end of their rate-cutting cycle. Inflation is expected to fall below their target in the coming year, prompting the ECB to become more cautious. Energy prices have been low and the euro has strengthened, which reduces import costs but makes exports less competitive. The market is pricing in only one more ECB cut this year. The euro strengthened on the news, as the interest rate differentials are expected to close as the Fed possibly cuts later on in the year.
Finally, the speaker mentioned one additional piece of "random news": Wells Fargo being released from asset cap, it might imply for credit creation and the banking sector in the US.