Michael Reinking:
Hello, I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines. Every week we are here to keep you up to date on the key trends and events driving global markets, and in this dynamic environment there are no shortage of topics. So let's dive into this week's Market Storylines.
We left you last week ahead of the employment report, which continued to point to a resilient labor market with 177,000 jobs added to the economy ahead of the 130,000 estimate. Though there were negative revisions to the previous two months. Now job gains were driven by education and healthcare services and leisure and hospitality, which were areas of weakness in the ADP survey. Now, the unemployment rate held steady at 4.2% while the participation rate increased. Overall, this was a solid report continuing to suggest that there has not been a significant deterioration in the labor market. Now, this helped major indices rally on Friday with the S&P 500 ending up about 1.5% capping off a nine day winning streak, the longest since 2004, and recouping all of the post Liberation Day losses.
Now, this was one of the last major pieces of economic data ahead of this week's Fed rate decision, which along with a better than feared ISM services report this week removed whatever little suspense there was heading into that event, which we'll discuss more in a moment. Now, the market winning streak was snapped on Monday as major indices pulled back modestly while many global markets were closed. However, a new winning streak started as the New York Knicks have now pulled off back-to-back epic comebacks to take a 2-0 lead in their playoff series heading into the Garden this weekend. Sorry, I digress.
Now this week it continued to be busy on the earnings front and trade headlines continue to make waves. As we're moving deeper into the earnings season, most of the major themes have already been hashed out, so until we start to hear from major retailers and Nvidia over the next couple of weeks, this is having less of a market impact. Now throughout the week, the administration continued to feed trade hopium, teasing the first trade deal, which got announced this morning, while also setting up the first high level meeting with China in Geneva this weekend.
But before we move on to trade, let's talk about the Fed meeting. Now, as widely expected, the committee left rates unchanged. Now, last week we highlighted that the first negative GDP print since 2022 provided some good clickbait, but noted that the underlying data didn't point to a sharp decline in activity. The committee held a similar view as this dynamic was discussed in the first line of their statement while saying that economic activity continue to expand at a solid pace, which was unchanged from the previous statement.
Now, other than the mention of GDP, the other major change to the statement was that the risk to both sides of the Fed's dual mandate had increased. Now, chair Powell's message was very consistent with what we've heard recently, that the economy and the current policy stance, which he described as moderately restrictive, were in a good place allowing the committee to be patient. He acknowledged that the potential impact of the administration's policies changes could create tension between the Fed's dual mandate. Now, in discussing how the Fed would deal with that tension, he said the committee would assess how far away from each is from their goal and how long it would take to get back to that goal in forming their decision. Now, he reiterated the importance of inflation expectations remaining well anchored while pointing to the divergence of survey and market-based measures.
Now, overall, there were no major surprises and the Fed remains deeply entrenched in its wait-and-see stance. For those keeping track at home, the chairman said wait-and-see 11 times during the press conference, nearly double the amount of times he said uncertainty. Now as such, market expectations for the first rate cut in June have continued to fade. The move in treasuries was muted while equities ended the session higher held by a rally late in the session after there were reports that the administration would not enforce the AI diffusion rule, which restricts the export of chips, though China restrictions would remain in place.
Now this is the perfect segue into trade and after yesterday's close, the president said the first trade deal would be announced at 10 A.M. this morning. That deal was with the UK, a country which was not subject to the additional reciprocal tariffs announced in the Rose Garden. Now, the announcement was a framework with many of the details still being hashed out. As part of that deal, the 10% baseline tariff would remain in place and barriers for billions of dollars of US goods including agriculture, chemicals, and energy would be removed. Now, the UK will receive exemptions on 100,000 exported autos, Rolls-Royce engines used in Boeing planes, and a lowered rate on steel.
Now, negotiations are ongoing with digital taxes and pharmaceuticals still being worked on. Now, markets reacted positively to the news but accelerated to new highs during the press conference as President Trump continue to suggest that a deal with China could be reached. As we're recording late in the session on Thursday, there was a clear risk on move with the S&P 500 up over 1%, trading back above 5,700 and within 1% of the closely watched 200 day moving average. Now the US dollar index has also broken above 100 for the first time since the start of April, though it still is below Liberation Day levels. And treasury yields are up about 10 basis points while gold is down over 2.5%, giving back much of this week's gains. And lastly, Bitcoin is also back above 100,000. Now, this was a positive step on the trade front, but I'd caution that this was one of the easier deals to reach and I think it will take more time before we get similar announcements from the likes of the EU, Japan, or South Korea. As it relates to China, this weekend's meeting is about de-escalation.
Substantive agreements are still a ways off. Now looking to next week, the headlines coming out of this meeting will set the tone. The focus will then shift back to the economic data with CPI on Tuesday and retail sales on Thursday. The Walmart earnings that morning may be more insightful about the state of the consumer. Now, President Trump will also be traveling to the Middle East after OPEC Plus announced a production increase this past weekend.
That's going to do it for another action-packed week here at the New York Stock Exchange. Once again, thank you for spending some time with us today. Remember, you can always watch on tv.nyc.com or our YouTube channel or listen on the Inside the ICE House podcast feed. I'm Michael Reinking. I'll talk to you again next week.
Speaker 2:
That's our conversation for this week. Remember to rate, review and subscribe wherever you listen and follow us on X at ICE House podcast. From the New York Stock Exchange, we'll talk to you again next week, Inside the ICE House.
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
