The Market Today
Trade Progress but Uncertainty Remains for Brexit
by Craig Dismuke, Dudley Carter
Vining Sparks 2Q Economic Outlook Webinar: Vining Sparks will host its 2nd Quarter Economic Outlook Webinar on Thursday morning. We will highlight why we think the economy remains in a stable position despite all of the weak economic data and uncertainty that currently prevails. Additionally, we will dig into the details of why the Fed has made such an abrupt shift in its policy bias, providing some key metrics for investors to watch going forward. If you would like to register for the event, please click here.
THIS WEEK’S CALENDAR
CPI Inflation, ECB Meeting, and Brexit Extension?: This week’s calendar will bring small business confidence (Tue.), the February job openings data (Tue.), and the FOMC Minutes (Wed.). However, the biggest report of the week is scheduled for Wednesday, the March CPI inflation data. Particularly with inflation running a bit on the soft side lately, and this being the primary justification for a pause in Fed policy, all of the inflation indicators are of primary importance now. Core CPI is expected to hold at 2.1% YoY. The biggest potential catalyst for market volatility will come from across the Atlantic with an ECB policy decision due Wednesday and European Union leaders also meeting on Wednesday to discuss a possible Brexit extension. For now, the U.K. has been given until this Friday to finalize a deal but that deadline is likely to change.
Overnight – Markets Take a Breather after Strong April Start: After a strong start to the second quarter, the MSCI World Index rose 2.1% last week, most global equity indices edged lower overnight as investors looked back as last week’s developments on the global economy (signs of stability), U.S. labor market (hiring rebound, cooler wages), and trade (“substantial” progress on a trade deal), and ahead to the start of the quarterly earnings season. China’s CSI 300 slipped 0.1%, Japan’s Nikkei fell 0.2%, and the Stoxx Europe 600 was hovering just below the flat-line. White House economic adviser Kudlow reiterated Sunday that a trade deal with China is “closer and closer” and that top officials would continue discussions this week in “a lot of teleconferencing.” Sovereign yields were mixed but little changed overnight, although yields in the U.K. had declined the most among core countries. PM May’s government is scrambling for a deal to take to the EU’s emergency Brexit summit on Wednesday in hopes of earning an extension past Friday’s deadline that could leave the U.K. outside of the EU without an agreement. Later this week, several U.S. banks will kick off quarterly earnings season with their latest results and updated outlooks. Analysts expect it could be a challenging quarter, considering it’s the first without the YoY comparative benefit of 2017’s tax reform changes. Futures on the S&P 500 were 0.1% lower around 7 a.m. CT and Treasury yields were up less than 1 bp inside of ten years.
ICYMI – April 5, 2019, Weekly Market Recap: Treasury yields rose last week on hopes that the U.S. and China were nearing a final trade deal and signs that the global economy could be stabilizing after a shaky stretch around the turn of the year. The biggest move came Monday after a couple of PMIs signaled China’s manufacturing sector expanded for the first time in four months, the ISM’s U.S. manufacturing PMI topped estimates, and U.S. construction spending proved better than expected. February’s retail sales data the same day missed estimates but revisions showed January’s rebound was steeper than previously estimated. Monday’s 9.6-bps increase Monday for the 10-year yield was the largest since January 4. The second big move up (5.0 bps) followed a report from the Financial times that the U.S. and China had resolved most of the trade issues and a surprisingly strong services PMI from China. The news drowned out a downbeat non-manufacturing ISM that showed the U.S. services sectors expanded at its slowest rate in 19 months. Before Friday’s payroll report, both sides of the trade negotiations confirmed the Financial Times’s report from earlier in the week that a trade deal was nearer. Job growth rebounded in March in an ideal report for a Fed that has pledged to be patient. The strong rebound in hiring (196k) eased concerns that the U.S. was tipping into a recession while the slower wage growth (down from 3.4% to 3.2%) should ease fears of any Fed officials concerned about overheating. Click here to view the full recap.