Key Updates:
Trump accuses May of undermining Brexit, uncertainty looms over US-UK trade deal: The Sun
During the NATO summit, Trump hinted at the possibility of ending military exercises: CNN
In June, China reported a record trade surplus: Reuters
US consumer inflation escalates to a six-year high in July: MarketWatch
Jobless claims in the US fell to a two-month low during the July 4 holiday week: Bloomberg
Global PC shipments climbed in Q2 2018, marking the first increase in years: C|NET
Will the Federal Reserve halt further rate hikes to avoid an inverted yield curve? MarketWatch
The US 10-year to 2-year Treasury yield curve dips to an 11-year low — 25 basis points:
Recognition for Capital Spectator:
Focus Economics, a consultancy dedicated to macroeconomic analysis, recently published a list of “50 Top Economics Influencers to Follow,” where CapitalSpectator.com earned the distinction of being ranked number 50. It was a close call, but we are honored to be among a remarkable group that includes academics, journalists, industry experts, and central bankers. If you seek insightful analysis on macro and financial topics, this list is a great place to start. Check it out by clicking here.
Asset Return Trends:
Return correlations among major asset classes have been on the rise in 2018, as indicated by the median of pairwise correlations for rolling one-year periods derived from a selection of exchange-traded products. Though the current median correlation remains well below the levels seen in the prior year, the upward trajectory throughout this year is notable. This suggests that the benefits of diversification may potentially diminish in the coming months or years.
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NATO Summit Developments:
Trump creates turbulence at the NATO meeting in Brussels: LA Times
Are Trump’s criticisms of NATO beneficial to Putin?: CNN
Business groups and Republican lawmakers express growing concerns about the trade war: The Hill
The European Commission revises its GDP growth forecast for Europe in 2018 downward: RTT
Concerns arise over crude oil prices as demand decreases and supply increases: MarketWatch
Morgan Stanley predicts the US Treasury yield curve will invert in 2019: Bloomberg
The US-driven trade war has already cost the average American family $60: NY Times
Revisions have indicated an increase in US wholesale inventories for May: Reuters
Wholesale inflation in the US has surged to a six-year high in June: MarketWatch
New Book Excerpt:
A few weeks ago, I published the first part of a chapter excerpt from my latest book, Quantitative Investment Portfolio Analytics In R: An Introduction To R For Modeling Portfolio Risk and Return. Here is the second part of this excerpt from Chapter 5, which covers the fundamentals of factor analysis with R code. The sample below emphasizes additional analytics, including an introduction to a related technique: principal component analysis (PCA). (Note: footnotes from the book are omitted for this web version. For a complete chapter listing, see here. All code in Quantitative Investment Portfolio Analytics In R can be found in a single file via a link provided in the book.)
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Small-Cap Stock Performance:
Small-cap stocks have outperformed other US equity factors in 2018, according to a range of proxy ETFs.
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Trade War Tensions:
Trump targets an additional $200 billion in Chinese goods for tariffs: Politico
Is the trade war a precursor to a financial crisis?: Bloomberg
Trump claims Germany is a “captive” of Russia: Reuters
US job openings fell in May after reaching a record high: Bloomberg
Small business optimism in the US declined in June, but remains close to historical highs: Marketplace
US workers are quitting their jobs at the highest rate since 2001: MarketWatch
Consumer Inflation Insights:
Upcoming reports on consumer inflation for June are anticipated to indicate that the recent upward trend persists. Analysts predict that the year-over-year figure for headline prices will increase to its fastest rate in more than six years. While it is easy to exaggerate the rise in pricing pressures, especially given the mild deflation experienced recently in 2015, the current increase from a low base still reflects a moderate rate in historic context. Nevertheless, these figures illustrate a clear reflation trend that may push the Federal Reserve toward tightening monetary policy.
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Supreme Court Nomination:
Trump selects Brett Kavanaugh, a solid conservative candidate, for the Supreme Court: The Hill
Ahead of the NATO summit, Trump criticizes member nations regarding defense spending: Politico
China’s producer inflation reached a six-month peak in June: Reuters
UK economic growth accelerated in May: MNI
July sees a steep decline in German economic sentiment: Investing.com
Turkey is highlighted as a highly vulnerable emerging market: NY Times
The lowest-rated tranche of non-investment grade US corporate bonds signals economic warning signs: Bloomberg
US consumer credit increased in May significantly, the largest growth in six months: Bloomberg
The 10-year to 2-year Treasury yield curve remained below 30 basis points on Monday:
Market Performance Overview:
In the first week of July, positive returns were evident across the major asset classes, according to a selection of US-listed exchange-traded products. Every sector except commodities showed gains for the trading week ending July 6.
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