The major averages begin the week with small losses on little news though the trade war with China is officially underway. Initially I would expect to see notable upticks in inflation over the next couple of months. Depending on the duration of the tariffs, a fairly meaningful impact on corporate profits and economic growth is also expected. That last time significant trade tariffs were enacted was after the Great Depression in 1929 with the Republican promoted Smoot-Hawley tariff act of 1930. A Depression it was widely credited with prolonging and exacerbating.
Foreigners remaining willing buyers of domestic securities after the Treasury International Capital Flows or TIC report showed net purchases of 93.9 billion in April. Agency bonds, equites and corporate bonds were popular, Treasury notes and bills sold off a little.
The National Association of Home Builders Housing Market Index slipped 2 points to a still strong 68 in June. The details were unremarkable, the western region remains particularly strong.
As expected the yield curve continues to flatten as interest rates rise. Spreads are revisiting the lows last seen in 2007, reaching single digits in some cases. That said at present one more quarter point hike by the Fed could well invert the yield curve, while this is no guarantee that difficult economic times will result, it’s certainly a very strong indicator.
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