The Market Today

Small Business Optimism Recovers Less than Expected, EU-U.S. Trade Tensions Flare

by Craig Dismuke, Dudley Carter

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Small Business Confidence Recovers Less than Expected: Small business confidence recovered just 0.1 points to 101.8 in March, falling short of the median economist’s estimate of 102. The March recovery was the second monthly gain in a row after a string of five declines amid greater economic uncertainty around the end of the year and concerns about U.S.-China trade negotiations. Even after the minor recovery early in 2019, the index remains at the bottom of its post-election range. The details of the March report were mixed with improved employment expectations, a weaker assessment of inventories, and an unchanged outlook for capital projects, the economy, and higher sales. Thirty-nine percent of business owners said they were unable to fill open job positions while a net 20 percent said they were planning to raise wages, down from stronger levels in 2018. The number of respondents checking “other” as their single biggest problem, likely including concerns about trade, remains elevated relative to historical levels. The weak recovery lines up with softer business spending to start the year, but the strong labor indicators should further ease concerns that businesses are worried about the U.S. economy falling into a recession.


Later Today: At 9 a.m. CT, the BLS JOLTS report is expected to show a modest pullback in the number of job openings in February to a still strong 7.55MM. If as expected, the level would represent the fourth strongest level on record, mark the 12th month where openings exceeded the number of unemployed, and add to the soothing effect of last Friday’s nonfarm payroll report on fears of an imminent U.S. recession. Last week’s report showed 196k jobs were added in March and February’s unexpectedly weak 20k initial print was revised up to 33k. At 4 p.m. CT, Fed Governor Quarles will speak on financial rules and will be followed by Fed Vice Chair Clarida at 5:45 p.m. CT. Vice Chair Clarida will be attending one of the Fed’s town halls it’s hosting as part of its policy framework review.



Yesterday – S&P 500 Salvaged Win Streak as Treasury Yields Ticked Higher: It looked suspect early in the day, but a steady recovery from an early-morning drop pushed the S&P 500 up for an eighth consecutive day, matching its longest run of gains since 2004. The index rose 0.1% Monday as six sectors rose while 5 others ticked lower. Energy companies led the way, up 0.5% on the day as crude prices posted their strongest daily gain in nearly a month. U.S. WTI settled up 2.1% at $64.40 per barrel, its highest level since October. There were concerns about supply disruptions in Libya and reports indicated the U.S. was designating an Iranian military group as a terrorist organization, both events that could weigh on global supply. Rate-sensitive utilities and real estate companies led declines, while pullbacks in shares of GE (analyst downgrade) and Boeing (production cut, analysts downgrade) also dragged down the industrials. Boeing’s 4.4% tumble had an outsized impact on the Dow, which was left behind in negative territory with a 0.3% Monday loss. Treasury yields tracked the jump in crude and steady recovery in the stock indices and the entire curve ended up more than 2 bps on the day. The 2-year and 5-year notes added 2.2 bps to 2.36% and 2.33%, respectively, while the 10-year yield rose 2.7 bps to 2.52%.


Overnight – Europe Draws the Headlines on Brexit and Trade: Global stocks are mostly higher despite continued concern about Brexit and renewed trade frictions between the U.S. and EU. Most Asian markets were higher and the Stoxx Europe 600 had inched up 0.1% ahead of tomorrow’s emergency Brexit summit. U.K. PM May previously requested a delay of Friday’s deadline until June 30 while European Commission President Tusk had floated delaying the U.K.’s exit for roughly a year. A report overnight cited EU sources close to the matter who expected the bloc to offer the U.K. an extension to December 31. A longer extension is considered by some to be a strategic step to apply pressure on pro-Brexit officials to support the current withdrawal agreement in order to avoid participating in EU Parliament elections, and possibly not leaving the EU at all. There were also trade headlines involving the EU and its spat with the U.S. The U.S. announced it was preparing tariffs on $11B of goods from the EU in response to unfair subsidies for Airbus, leaning on a report from the WTO, with the EU responding that it would retaliate to rectify damages caused U.S. subsidies to Boeing. Broader trade negotiations between the two countries were expected this year but have been delayed. U.S. equity futures were down around 0.2% around 7:30 a.m. CT while Treasury yields have moved lower by 1.1 bps to 1.6 bps.



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