China, Brexit, Iran: Wealth Economic Update May 11, 2019

U.S. and World News

  • china-1053768454_370On Sunday night, just days before a Chinese trade delegation would depart for Washington to wrap up 18 months of trade negotiations, President Trump tweeted that tariffs on $200 billion of Chinese goods would rise to 25% from 10% by the end of the week, accusing China of “reneging” on its trade promises. President Trump also shared his intention to impose a 25% tariff on the remaining $325 billion of Chinese goods that aren’t currently taxed, making virtually all Chinese exports to the United States subject to a 25% tariff. The Chinese trade delegation led by Vice Premier Liu He did travel to the White House on Thursday for negotiations that ended earlier today, and the 10% tariff rate on $200 billion in Chinese goods did increase to 25% at midnight last night. China’s Commerce Ministry has announced that they will be taking countermeasures against the tariff increase, but that specifically has not yet been revealed. There have been numerous statements from officials of both countries regarding trade talk progress or lack thereof while markets respond in volatile fashion and struggle for direction, however, the only things we actually know to be true at this point is the fact that there is no done deal, and the tariff rate on $200 billion of Chinese goods has risen to 25% from 10%.
  • British Prime Minister Theresa May’s future has once again, been called into question as members of the committee are talking about a rule change that would allow another no-confidence vote to oust her. Currently, the Prime Minister is protected by a rule that does not allow more than one no-confidence vote within 12 months of the previous one that occurred in December. Committee members are growing frustrated that a timetable for Theresa May’s departure has not been set out. Both parties experienced losses in last week’s elections and a new offer is on the table, a deal that would result in a customs union-type arrangement lasting until 2022, Britain’s next general election. At that point in time, it would be decided whether to move toward a full customs union or a deal that would allow Britain to make trade deals with other countries.
  • After American sanctions on Iran have begun to cripple their economy, President Trump has offered to meet and negotiate with Iran’s leadership team about giving up their nuclear program, which was quickly rejected. The United States deployed the Abraham Lincoln carrier through Egypt’s Suez Canal and B-52 bombers to the U.S. base in Qatar yesterday as a warning to Iran. Iran’s leader, Ayatollah Tabatabai-Nejad responded by saying “Their billion dollar fleet can be destroyed with one missile” and “if they attempt any move, they will face dozens of missiles”.


Markets

  • Markets experienced volatility as a result of trade drama with China and finished the week lower. The S&P 500 fell 2.10% and closed at 2,881. The Dow Jones fell 1.96% and closed at 25,942. Year to date, the S&P is up 15.74% and the Dow Jones is up 12.15%.
  • Yields fell this week as investors fled to bonds. The 5 year and 10 year U.S. Treasury Notes are yielding 2.26% and 2.47, respectively.
  • The spot price of WTI Crude Oil ended the week relatively unchanged. Prices fell 0.37% and closed at $61.71 per barrel. Year to date, Oil prices are up 35.90%.
  • The spot price of Gold rose 0.54% this week and closed at $1,286.05 per ounce. Year to date, Gold prices are up 0.28%.

Economic Data

  • Initial jobless fell to 228,000 this week. The four-week moving average of claims rose by 7,000 to 220,000. Claims rose by 11,000 in New York and by 2,000 in Illinois.
  • The producer price index (PPI) rose by 0.2% versus expectations for a 0.3% increase
    PPI ex-food and energy rose by 0.1% versus expectations for a 0.2% increase
  • The trade deficit rose to $50.0 billion, as expected
  • Wholesale inventories fell by 0.1% versus expectations for no change
  • The consumer price index (CPI) rose by 0.32% versus expectations for a 0.4% increase and the year-over-year rate came in at 2.0% versus expectations for 2.1%
  • Core CPI rose by 0.14% versus expectations for a 0.2% increase and the year-over-year rate came in at 2.07%, in-line with expectations

Fact of the Week

  • Sell in May? Since 1989, the 6 month period beginning November 1st has outperformed the 6 month period beginning May 1st 19 out of 30 times. Total return for the 6 month periods starting November 1st were +731%, while total returns for the 6 month periods starting May 1st were only +119% over the 30 year period. (Source: BTN Research)

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann, CFP® – (630) 844-5730 –  rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Brad Johnson, CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Mike Cava, CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Jacqueline Runnberg, CFP® – (630) 966-2462 jrunnberg@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

 

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