Market Watch: June 14, 2019
Big Picture
Mexico Tariffs Suspended, Fed to Focus On Low Inflation U.S. markets got off to a good start this Monday, buoyed by relief over the White House’s decision to drop a threat to hit Mexico with tariffs on billions of dollars of goods. U.S. Treasury yields and shares of manufacturing and tech companies rose after President Trump “indefinitely suspended” the tariffs, which were set to take effect Monday.
In China, the yuan on Monday slipped to its weakest level in 2019 after the country’s imports fell the most in nearly three years and as talks to end the China-U.S. trade war remain deadlocked. However, Chinese stocks did get a boost Tuesday from fresh stimulus measures. Chinese shares rallied over news that Beijing would be speeding up financing of major infrastructure projects through special bond issues. The Shanghai Composite Index rose 2.6%, its strongest single-day gain in nearly a month. Meanwhile, Hong Kong’s Hang Seng Index declined sharply mid-week, as protests turned violent over a bill there to allow extradition to China.
In the U.S., inflation expectations are continuing to fall, in what is likely to be a troubling development for the Fed as it considers lowering its short-term rate target. The expectation that the Fed will need to lower rates is driven by weak inflation, along with worries the Trump administration’s various trade battles could pose serious risks to growth. U.S. inflation slowed in May, as the consumer-price index rose just 1.8% from a year earlier, despite a strong jobs market and wage gains. Fed officials are set to meet next week, beginning Tuesday.