Weekly Economic Update: May 20th, 2019
• The two-year Treasury note yield fell seven basis points last week to yield levels not seen since February of 2018. The decline in yields was primarily due to the ongoing trade issues with China and the fear that an acceleration of these disputes could damage economic growth. The U.S. threatened to increase tariffs from 10% to 25% and broaden the number of goods subject to tariffs.
• The stock market responded to the increase in tariffs with a 617-point decline in the Dow index on Monday. The equity market spent the rest of the week recovering most of the selloff but still ended the week down .69%.
• The decline in interest rates, particularly mortgage rates, has helped to support the housing market while increasing consumer confidence. The University of Michigan Consumer Sentiment Index increased last week to a fifteen-year high. Confidence has climbed throughout 2019 as the equity market is up 15% YTD. Will this confidence hold if the trade dispute with China becomes more entrenched?
• GDP is expected to slow from the first quarter’s pace, but the underlying fundamentals should pick up in the second quarter, which will help the economy but probably not enough to overcome the low inflationary outlook. The Fed is poised to ease interest rates later on this year if the economy weakens or if inflation doesn’t firm up soon.