U.S. equities began the trading week with solid losses, but off the worst levels of the day, mirroring their global counterparts, courtesy of escalating trade conflicts in the midst of a volley of tariff rhetoric between the U.S., Europe and China. Treasury yields and the U.S. dollar were lower despite a 6-month high in new home sales and a surprising jump in regional manufacturing activity. Crude oil prices finished lower on the heels of last week’s OPEC production increase, and gold dipped. Meanwhile, the trade frictions provoked a warning from Harley-Davidson, while Campbell Soup rallied on news that Kraft Heinz is interested in the company.

The Dow Jones Industrial Average (DJIA) declined 328 points (1.3%) to 24,253, the S&P 500 Index decreased 38 points (1.4%) to 2,717, and the NASDAQ Composite tumbled 161 points (2.1%) to 7,532. In moderately-heavy volume, 900 million shares were traded on the NYSE and 2.4 billion shares changed hands on the NASDAQ. WTI crude oil fell $0.50 to $68.08 per barrel and wholesale gasoline was down $0.02 at $2.05 per gallon. Elsewhere, the Bloomberg gold spot price traded $5.12 lower to $1,265.44 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.2% to 94.27.

New home sales rose 6.7% month-over-month (m/m) in May to an annual rate of 689,000 units—a six month high—versus the Bloomberg forecast calling for 667,000 units and the downwardly-revised 646,000 unit pace in April. The median home price declined 3.3% y/y at $313,000. New home inventory fell to 5.2 months of supply at the current sales pace from 5.5 in April. Sales jumped m/m in the South, more than offsetting a flat reading in the Midwest, along with drops for sales in the Northeast and West. Sales were higher in all regions y/y. New home sales are based on contract signings instead of closings.

The Dallas Fed Manufacturing Activity Index jumped to a four-month high of 36.5 in June from May’s unrevised 26.8 level and versus forecasts of 24.9, with a reading above zero denoting expansion.

Treasuries finished higher, as the yields on the 2-year and 10-year notes, as well as the 30-year bond declined 2 bps to 2.53%, 2.88% and 3.03%, respectively.

Treasury yields and the U.S. dollar dipped despite the upbeat economic data, with the global markets appearing to continue to be skittish amid the elevated trade tensions, with Europe and China suggesting they will not sit quietly after last week’s threat by the U.S. to deploy tariffs on EU automakers, as well as the recent tariff exchanges between China and the U.S. Reports over the weekend also noted that the White House plans to tighten restrictions on Chinese investments in the U.S. and limit exports to China.

Schwab Center for Financial Research – Market Analysis Group

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