What Happened Last Week
- Sell America: U.S. long-term Treasuries, equities, and the dollar all declined as investors sought shelter in defensive assets and international stocks.
- U.S. Debt Concern: Investors expect the House’s budget passage to increase the deficit, fueling the risk-off sentiment
- More Trade Woes: Sharp pivots on EU tariffs and on Apple prompted increased volatility in markets, keeping the uncertainty overhang alive.
What We’re Watching This Week
- Earnings: Nvidia (NVDA) on Wednesday is the week’s highlight; Costco (COST) and Salesforce (CRM) are two others to watch.
- Interest Rate Risk: U.S. and Japanese government bond auctions are important directional signals for rates over the next couple of weeks.
- Economic Data: Updated global consumer confidence, inflation, and GDP figures may also influence sentiment in the fixed income and equity markets.
Investment Management Team’s Views
Investor angst over long-term government bond yields dominated trading last week until President Trump dropped another tariff bomb on Friday. The Treasury yield curve steepened on pressure from the House’s narrow passage of a budget bill that is likely to expand the deficit. Weak government auctions in the U.S. and Japan and hot inflation prints in the U.K. and Japan poured gasoline onto an already smoldering sentiment fire. In a continuation of the on-again off-again “sell America” theme that has been a key market narrative for the last two months, the dollar weakened materially, international stocks strongly outperformed domestic equities, and gold rallied sharply. Higher long-term yields weighed on domestic small-caps and other cyclicals, while defensives like staples and utilities were relative winners outperformed in a risk-off tape.
Friday morning brought the trade threat back into view as Trump floated higher tariffs on the European Union (EU) and the third-largest company in America, Apple. Weekend reporting indicated that the deadline for 50% tariffs on EU imports has been pushed back from June 1st to early July, an indication of progress on U.S.-EU trade talks. Details aside, the last few days have shown that the Trump Administration is serious about reforming global trade through a painstaking process for both markets and the real economy. The level of uncertainty, although less than it was in April, remains enormous. Market pricing does not fully reflect the range of possible outcomes, keeping us cautious in our positioning over the next few months.
NVDA’s earnings report after Wednesday’s close is the highlight of the week. COST and CRM will also gauge the health of the consumer and enterprise software investment, respectively. With all the concern about long-term interest rates, Japanese and U.S. bond auctions this week will be closely watched for signs of a buyers’ strike. This week’s economic data releases include consumer confidence reports from the U.S. and Europe, revised figures for 1Q U.S. GDP, the Fed’s preferred inflation gauge, and inflation data from Japan and Germany. Tariff headlines loom large in the background, an increasingly familiar set-up for investors.
