The Market Today
Mnuchin ‘Cautiously Hopeful’ on Trade Compromises
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
Light Week But Impactful Data: This week’s economic calendar is fairly light on a holiday-shortened week, but brings a few reports that pack a punch. March’s Conference Board Consumer Confidence report is scheduled for Tuesday and is expected to improve from its 18-year high that it posted last month. The University of Michigan’s confidence report is expected to show confidence unchanged from its second-highest level since 2000 in Thursday’s data. We will have a better gauge on two key 2Q GDP metrics in February’s advanced look at the trade balance report (expected to show a slight decrease in the goods trade deficit) and the February Wholesale Inventories report. The final revision of 4Q GDP is expected to show a 0.2% increase to 2.7% QoQ, SAAR on Wednesday. But the most important data will come on Thursday when the BEA releases its February personal income, spending, and PCE inflation data. Core PCE is expected to tick up from 1.5% YoY to 1.6% while income is expected to be another strong month but spending remain tepid.
Overnight – Global Stocks Begin a Rebound as Trade Tensions Show Signs of Easing: Global equities are less wound up Monday. Stocks traded mixed across Asia but European markets are climbing and U.S. equity futures are sharply higher. Contracts on the Nasdaq have jumped just over 1.7%. The Dow and S&P are both up more than 1.4%. An opening recovery would ease investors’ minds somewhat following last week’s losses that were the steepest in more than two years. Investors dumped equity positions late in the week after the U.S. announced possible trade tariffs on China and the communist country retaliated in response. While trade tensions remain heighted, there were some positive developments over the weekend. An agreement between the U.S. and South Korea was announced that refreshed the current bilateral deal. Also, on Sunday Treasury Secretary Mnuchin said he’s “cautiously hopeful” the U.S. and China can agree on a compromise to prevent a full-fledged trade war. “We’re having very productive conversations with them.” As equities have recovered, so to have global sovereign yields. The Treasury curve was higher by 3.3 bps and 4.1 bps across almost entire curve. Heading into U.S. trading, the 2-year yield was trading at 2.29%, the 5-year yield at 2.64%, and the 10-year yield at 2.85%.
ICYMI – March 23, 2018 Weekly Market Recap: The Fed raised its target range 25 bps to 1.50%-1.75% and projected a slightly steeper rate path starting in 2019 as the U.S. central bank brightened its projections for growth and employment over the next couple of years. But despite the stronger outlook for the economy and expectations they’ll be able to raise rates more than previously thought, yields fell on the week. The entire curve inside of thirty years pulled back roughly 4 bps on the week in response to a tumultuous week for global equities. The S&P 500 fell just under 6% and the major three indexes registered their worst week since January 2016. The primary catalyst for investors paring their equity holdings was increased fear of a future trade war. The U.S. announced potential tariffs on between $50B and $60B on imported goods from China. China quickly responded with retaliatory charges of their own, setting off a string of downticks for global equity indexes. Lost in all of that noise were mixed housing reports, stronger signals on business spending in February, and a $1.3T omnibus bill that passed quickly through Congress and was signed by the President on Friday to prevent a weekend government shutdown. Click here to view the full recap.