International Developments and Key US Economic Data -- Positives for Stocks This Week?

The stock market may very well be helped by international developments and key US economic data this week.  The Treasury market will likely give back of some of last week's oil-related gains.

The ups and downs of Trump's international efforts risk helping stocks in the next week or two, as the summit with Kim Jong Un appears to be almost back on course.  The press will probably focus on the extent to which Trump gets the North Koreans to give up their nuclear weapons.   Just as important for the markets will be the positive implication of the summit for a resolution of the US/Chinese trade dispute.  Since China is North Korea's main backer, a summit would suggest China stood back from stopping it, hoping in exchange for the US to bend somewhat in its trade demands.

The implications of a US/Chinese trade agreement may not be positive for stocks longer term, however.   A negotiated reduction in the US/China deficit, even by having China buy more US exports, would serve to boost the US dollar's exchange rate.  This would hurt US exports.   And, ironically, if the negotiated boost in US exports is in agricultural goods, other exports -- e.g., manufactured goods -- would be hurt the most.  It also would hurt the dollar value of US corporate profits earned abroad.  A stronger dollar should serve to depress commodity prices, such as oil, as well.

Aside from these international developments, this week's key US economic data should underscore a strong economy with little inflationary pressures.  Consensus looks for no revision in the 2nd estimate of Q118 Real GDP Growth, due Wednesday.  But, I would not be surprised if it is revised up from the 2.3% first print.  On Thursday, the consensus estimate of +0.1% m/m in the April Core PCE Deflator has more downside than upside risk based on composition differences between the Deflator and the CPI.  On Friday, there is probably downside risk to the +185k m/m consensus estimate for May Nonfarm Payrolls, after having climbed 164k in April.  March-April Payrolls have followed a similar path to last year's.  Last year, May Payrolls slowed from April's pace.  The consensus estimate of a steady 3.9% Unemployment Rate looks reasonable, but history has a lot of examples when a large m/m decline, as in April, is followed by a further decline the subsequent month.  The consensus estimate of a 0.2% m/m increase in Average Hourly Earnings risks being too high.  Calendar considerations point to a 0.1% print -- lowering the y/y to 2.5% from 2.6%.  The consensus expectation of an increase in the May Mfg ISM to 58.0 from 57.3 looks reasonable, based on the increase in the Richmond Fed Mfg Index.  The two moved in the same direction each month this year, although in only 7 of 12 months in 2017.