U.S. consumer confidence falls. Are trade tensions to blame?

On the latest edition of Market Week in Review, Quantitative Investment Strategist Abraham Robison and Research Analyst Brian Yadao unpacked the latest macroeconomic data from June. They also discussed potential outcomes of the upcoming meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the Group of 20 (G-20) summit in Osaka, Japan.

PMI, consumer confidence surveys suggest continued cooling in global economy

Broadly speaking, economic data released the week of June 24 pointed to a continued slowdown in the global economy, Robison said. “Purchasing Managers’ Index (PMI) surveys for June came in on the soft side, as production continues to weaken,” he stated, noting that the Chicago PMI for June dipped below a reading of 50, indicating contraction in the manufacturing sector.

Consumer confidence also took a hit this month, Robison said, with The Conference Board’s Consumer Confidence Index® dropping approximately 10 points from May. “The decline in consumer sentiment appears largely tied to ongoing trade tensions between the U.S. and China,” Robison explained, adding that it’s important to realize that, overall, consumer confidence remains at elevated levels.

Markets exhibited little reaction to the latest surveys, he noted, with the S&P 500® Index off less than 0.5% on the week, as of mid-morning Pacific time on June 28. The U.S. Treasury yield curve, as measured by the difference in yields between 10-year and 3-month notes, remained inverted by approximately 13 basis points, Robison added. “All in all, markets were a little boring the week of June 24—which actually feels a bit nice, given all of May’s volatility,” he quipped.

Trump-Xi trade meeting looms. Is a truce possible?

All eyes are on a much-anticipated June 29 meeting between Presidents Trump and Xi at the G-20 summit in Japan, Robison said, as the market looks for signs of a thaw in the China-U.S. trade war. “The ideal scenario for markets is that the U.S. and China reach an agreement on trade during the meeting, but we see that as fairly unlikely,” he stated.

A more probable outcome is a truce in the trade war, he said, buoyed by positive language from leaders of both countries. “While such a scenario wouldn’t remove trade uncertainty from markets, it would definitely give the market something positive to see,” Robison said.

On the other hand, there’s also the risk that the talks sour, leading to an escalation in trade tensions and the potential for additional tariffs, he noted. A bear-case scenario like this could help speed up the onset of the next U.S. recession, Robison explained. Russell Investments’ just-released Q3 Global Market Outlook drills further into these risks, he concluded.

 

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