The Market Today
Chinese Stocks Rose 6% and Into Bull Market as U.S. Delays Tariff Increase
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
Today’s Calendar: The only report released ahead of Monday’s market open was the Chicago Fed’s regional activity index for the month of January. As was the case with last week’s Philadelphia Fed Index, the Chicago Fed survey for January was much worse than expected. The headline index slipped from 0.05 in December (revised lower from 0.27) to -0.43, lower than the 0.10 expected and an indication that growth in the region was below trend to start the year. January’s decline landed the index at an eight-month low amid the elevated uncertainty starting the year that led the Fed to shift its policy to one of patience. In the details, the MoM decline was driven by indicators tracking production and income, and personal consumption and housing.
At 9 a.m. CT today, data on wholesale inventories and trade sales for December will be released alongside the Dallas Fed’s manufacturing activity index for February. At 10 a.m., Fed Vice Chair Clarida will be making remarks at an event in Dallas.
The Pace Picks Up From Here: The calendar for the remainder of the week is heavy from front to back and packed with important reports covering the gamut of U.S. economic activity. Key among the releases will be a number of updates on housing, 4Q GDP, consumer confidence, ISM manufacturing PMI, and Fed Chair Powell’s two-day testimony before Congressional panels.
Tuesday – Housing starts and building permits (Dec); home prices (Dec); Richmond Fed manufacturing index (Feb); Conference Board consumer confidence (Feb); Chair Powell testifies before Senate banking panel
Wednesday – Goods trade (Dec); retail, wholesale inventories (Dec); pending home sales (Jan); factory orders (Dec); Chair Powell testifies before House finance panel
Thursday – 4Q GDP; Chicago PMI (Feb); Kansas City Fed manufacturing index (Feb); Fedspeak (Clarida, Bostic, Harker, Kaplan, Mester, Powell)
Friday – Personal spending and income (Dec); PCE inflation (Dec); ISM manufacturing (Feb); University of Michigan consumer sentiment (Feb); Fedspeak (Bostic)
Overnight – President Trump’s Tariff Delay Gives Markets Near-Term Relief: Markets have started Monday with a risk-on tone as the top item on a long list of important events this week was settled on Sunday evening. President Trump announced in a string of tweets Sunday that he was “delaying” the tariffs increase planned for March 1 because of the “substantial progress” made in recent negotiations. “Assuming both sides make additional progress,” he went on, “we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement. A very good weekend for U.S. & China!” While moves elsewhere have been more muted, stocks in China ripped higher. The CSI 300 rallied just under 6%, its best day since July 2015, to its highest level since June. Monday’s gain pushed the index back into a bull market, up more than 25% from its early January lows. The Stoxx Europe 600, however, quickly erased an opening spike to trade up a more modest 0.2% earlier. Still, the index hit a new high since October and has rallied nearly 13% from its late-December low. U.S. futures were stronger, with contracts on all three major U.S. indices up at least 0.5%. As risk assets breathe a sigh of relief, yields on the safer sovereigns have inched higher from Friday’s closing levels. Treasurys were out in front of the moves, with the 2-year yield up 1.7 bps to 2.51% and the 10-year yield 2.3 bps higher at 2.66%.
ICYMI – February 22, 2019 Weekly Market Recap: Last week’s economic data was generally disappointing, but stocks strengthened after the Fed Minutes shed more light on officials’ plan for patience and the U.S. and China announced positive progress on trade. The Philadelphia Fed’s manufacturing index hit a 33-month low in February. Existing home sales fell unexpectedly in January and are now at their weakest pace in over three years. And December’s capital goods orders further confirmed business spending has continued to moderate since last summer. On a positive note, home builder confidence perked up and initial jobless claims ended a three-week run of unusually elevated readings. However, markets were more focused on developments affecting monetary and trade policies. The Fed Minutes detailed the list of uncertainties that caused the Fed to shift to patience in January, but also signaled there is still support for a rate hike if the outlook clears up. The Minutes also disclosed almost everyone at the Fed supports ending balance sheet normalization later this year. Despite numerous positive trade headlines lifting stocks Friday and handing the Dow its longest weekly run since 1995, yields ended lower. A flurry of Fedspeak harped on muted inflation and the plans for exploring other policy options. Click here to view the full recap.