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Trump and the Trade War has been the biggest driver of price action these past few weeks. Trump’s trade comments and imposed tariffs has caused equities, gold, the dollar and yields to shift more than any other piece of economic data. This week’s economic data was not too exciting and didn’t cause the markets to make any meaningful shift.

Durable goods orders were a little worse than expected -2.1% vs -2% expected. GDP growth met expectations at an annualized rate of 3.1% for the first quarter of 2019. Personal income and personal spending both exceeded expectations, personal income 0.5% vs 0.3% expected and personal spending 0.3% vs 0.2% expected.

For March the average home price in the US rose 3.7% annually, 0.2% less than the growth seen in February. For the week ending May 25 we saw a slight increase in initial jobless claims which rose by 3,000 to 215,000, in line with market expectations. This week’s economic data was no home run which explains the lackluster price action following the data releases. President Trump is now expanding his quest for fair and balanced trade to our southern border and has begun to scuffle with Mexico. The tariffs will be set at 5% beginning June 10.

Data Releases:

Economic data this week had very little effect on trading. Markets priced in their expectations for Durable goods, GDP, Personal Spending and Personal Income which left for an overall slow week data wise.

Manufacturing

New orders for US manufactured durable goods fell 2.1 percent vs one month earlier in April 2019. This month’s durable goods report also downwardly revised March’s growth to 1.7 percent. The main driver of the decrease is the fact that transportation equipment orders decreased two of the last three months.

GDP

The United States Economic growth, measured by GDP, came in at an annualized rate 3.1% for the first quarter of 2019. Economist hit the nail on the head with their GDP estimates. Last months nonresidential fixed investment and private inventory investment were revised lower while exports and personal consumption expenditures were revised higher. GDP numbers as expected followed by mixed revisions usually leads to little price action as markets price in expectations prior to data releases.

US Personal Income & Spending

Personal spending increased 0.3% vs 0.2% expected while personal income increased 0.5% vs 0.3%. Increases in personal income are reflective of increases in wages and salaries, interest income, and government social benefits. The largest component of personal income is wages and salaries which increased 0.4% in March and 0.3% in April.

President Trump

President Trump has created more price action than any piece of economic data. Trade war fears, threats made, and imposed tariffs has caused the markets to shake. This week has been another shaky one as Trump puts more pressure on the Chinese and has now is dragged Mexico into the mix.

China is responding to the pressure President Trump is imposing. China had previously agreed to purchase soybeans from the United States but as the negotiations have deteriorated China has announced they would halt their purchases. Farmers in middle America are part of President Trump’s base, China has been quick to recognize that, and is now putting pressure on Trump as we come onto the next presidential election.

Stocks have taken another leg down as the United States plans to expand the trade war to Mexico. President Trump tweeted:

On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,..

— Donald J. Trump (@realDonaldTrump) May 30, 2019

He later stated that once the immigration problem is remedied by Mexico he lift the new tariffs. This fight puts pressure on auto companies that operate out of Mexico. Mexico has been a hub for car manufacturing as they have cheap labor and proximity to the United States markets. In total, trade is much more balanced between the US and Mexico than it is between the US and China. With China trade is relatively one sided as we import far more from China than we export to them.

Weekly Price Action

The trade with Mexico was the main driver of price action later into this week. It caused equities to take a bath and gold to catch a strong bid, now above $1310. The equity markets will have the first down month of 2019 with the DOW starting the month around 26500 and ending the month at 24900.

On the other hand, gold has had a breakout week, getting some much-needed excitement back into the gold market. Since the announcement gold is up nearly $30 and I would expect this rally to continue if we see more aggressive action taken. Watch out for more announcements on the trade front as well as any news coming out of the Fed, these have been the main drivers of price action this year with trade being the number one driver.