The Market Today
All Eyes on Trade Talk This Week
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
CPI Inflation and FOMC Minutes in Focus Wednesday: There are no reports on the economic calendar today. Tomorrow will bring the NFIB Small Business Confidence report while the University of Michigan Consumer Confidence report is scheduled for Friday. Both are expected to pull back fractionally from very strong levels. The big news of the week, however, will be Wednesday’s data on CPI inflation and the March FOMC Minutes. Core CPI YoY is expected to rise from 1.8% to 2.1%, primarily from a weaker March 2017 report dropping out of the calculation – so called “base effects”. As for the FOMC’s Minutes, this meeting was Chair Powell’s first meeting as Chair. More importantly, after such a hawkish result, the Minutes from the meeting will be dissected to see if there are any concerns by participants regarding the recent market volatility.
Overnight – Investors Ease Back in to Equities after Weekend Free of New Negative Trade Headlines: U.S. equity futures rose overnight, signaling a jump at the open and a partial unwinding of Friday’s drop that capped another week of volatility. As investors have moved back into riskier assets, Treasury yields have also reversed a piece of Friday’s decline in the trade-related flight to quality. The shifts in U.S. followed more positive trends globally on Monday. Asian equities closed stronger and the major European bourses are currently in positive territory. Monday’s moves likely reflect a bit of a relief rally after the weekend produced no new negative headlines on the ongoing trade spat between the U.S. and China. However, president Xi Jinping will be making a speech on Tuesday at an investment forum in China, creating the possibility that any reprieve could be brief. Reports of a missile strike on Syrian Air Force base, in response to the latest chemical weapons attack in Syria, has had no perceptible impact on the markets. S&P 500 futures are up 0.5% and lagging the other majors while the 10-year Treasury yield has added 2.2 bps.
ICYMI – April 9, 2018 Weekly Market Recap: Last week’s trading did nothing to dislodge the current trend of volatile equity markets, a market mainstay since early February, as the S&P 500 swung more than 1% in four of the five days of trading (more than 2% in two days). The March jobs report was the biggest focus on the economic front but overshadowed in the markets by renewed angst around trade tensions between the U.S. and China. The U.S. economy added 103k jobs last month, a disappointment relative to estimates and the stellar February result (326k after revisions). However, weather likely weighed on the headline tally and the three-month average remains above 200k. The unemployment rate held at 4.1% and hourly earnings firmed an as-expected 0.3% MoM and 2.7% YoY. But trade tensions were the bigger story and crescendoed throughout the week: China implemented tariffs on $3B of U.S. goods in response to the steel and aluminum tariffs (Sunday); the U.S. provided details of the $50B of Chinese goods that could be subject to tariffs (Tuesday); China responded with a list of $50B of U.S. goods (Wednesday); President Trump said he was exploring tariffs on another $100B of Chinese imports (Thursday); China said it would fight to the end and spare no costs if provoked on trade (Friday). Click here to view the full recap.