Wall Street treads water as US-North Korea summit is back on again

Investors have two more days to mull the impact on Wall Street stocks of the renewed US-North Korea summit due to be held in Singapore on June 12.

US markets are closed today for the Memorial Day holiday. In the week ahead, US data will include the May jobs report on Friday and the second estimate of first-quarter gross domestic product figures, due on Wednesday.

Internationally, key data include eurozone inflation figures and factory activity in China.

At the weekend, President Donald Trump announced his summit with Kim Jong Un was on again after the leaders of the two Koreas held a surprise meeting of their own.

US officials are already in North Korea to prepare details. Last week, Mr Trump abruptly cancelled the summit, sending stocks into a downward spiral that was exacerbated by continuing trade tensions between the US and China, not to mention proposed car tariffs that will affect Europe.

Stocks such as Boeing, Deere and Caterpillar have become unofficial proxies for the trade dispute. Qualcomm’s planned $US44 billion acquisition of NXP Semiconductors may also become collateral damage.

Stock indexes around the world struggled to gain ground last week as investors sought relatively safe assets such as government bonds and gold.

The Dow Jones Industrial Average closed on Friday at 24,753.09, up 0.2% for the week. The S&P 500 added a weekly gain of 0.3% to end at 2721.33, while the Nasdaq Composite added 1.1%, closing at 7433.85.

Dow faces resistance at 25,000
The Dow is facing resistance at crossing 25,000. It closed above this milestone last Monday for the first time since March 16 as trade tensions eased but slid again when continuing trade negotiations with China showed little progress.

Many investors remain convinced that the rekindled tensions are driven by a new aggressive negotiating style favoured by politicians, including Mr Trump, and that they are unlikely to cause disruption in the longer term.

“What I have been seeing for the past six months is that there are a lot more opportunities than there was last year. There’s just more stuff happening,” says Christian Ryther, manager of Curreen Capital Management.

Oil prices fell after major oil producers including Saudi Arabia and Russia signalled they might be willing to relax global production caps.

US crude for July delivery fell 4.9% on Friday to $US67.88 a barrel. Brent, the world benchmark, fell 3.1% to $US76.33 after earlier in the week exceeding $US80 a barrel.

US government bonds rallied as bubbling geopolitical tensions and signs the Federal Reserve would be willing to remain on a gradual pace of interest-rate increases helped drive up demand.

The yield on the benchmark 10-year Treasury note settled at 2.931%, compared with 3.067% on the previous Friday – the biggest one-week decline since April 2017.

European stocks decline
The Stoxx Europe 600 posted a 0.9% weekly decline, snapping an eight-week winning streak, as eurozone risks rose.

Politics in Italy took a new turn at the weekend as the president rejected a government proposed by anti-establishment parties. It’s likely a new election will follow.

On Friday, the yield on Italian government 10-year bonds rose to their highest level since 2017.

“We are avoiding Italian risk because there’s a contagion fee there,” says Angus Sippe, a fund manager at Schroders. “In the [eurozone] periphery, you clearly see the political risk.”

Meanwhile, Spain is submerged in a corruption scandal that could lead to new elections.

The benchmark IBEX 35 index lost 1.7% after the country’s main opposition Socialist Party filed a no-confidence motion against Prime Minister Mariano Rajoy.

France’s CAC 40 was down 0.1% on Friday, Germany’s DAX rose 0.95% and the UK’s FTSE 100 was up 0.2%.

Less confidence in US economy
US households became less confident about the economy in May, continuing to ease from a 14-year high seen earlier this year.

The University of Michigan said its consumer sentiment index was 98.0 in May, down slightly from an initial 98.8 reading for the month. Economists had expected a final reading of 98.8 for May, unchanged from April. This follows a 14-year high reading of 101.4 seen in March.

“Consumers have remained focused on expected gains in jobs and incomes as well as anticipated increases in interest rates and inflation during the year ahead,” says Richard Curtin, the Michigan survey’s chief economist.

The US Commerce Department’s initial GDP release showed the economy lost momentum at the beginning of 2018, coming in at a 2.3% annualised rate. Economists are expecting the second estimate to remain at 2.3%.

Economists expect the jobs report to show unemployment rate stabilising at 3.9% in May, with about 188,000 jobs likely added in the month.

In April, the unemployment rate fell to 3.9%, the lowest level since 2000, as the economy added a weaker-than-expected 164,000 jobs.

The European Central Bank is expected to receive some encouraging news with the release of inflation figures for May.

Economists expect to see a rise in the annual rate of inflation to 1.6%, from 1.2% in April, moving closer to the ECB’s target of just under 2%.

Rising energy prices are likely to have pushed the rate higher but a measure of core inflation that excludes that factor is expected to record a more modest increase, to 1% from 0.7% in April.