The Market Today
Trade Talks Remain the Focus; BoJ Governor Says Bank Can Do More
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
Quiet Week with Focus on U.S.-China Trade Talks: This week’s economic calendar is fairly quiet with a few important reports worth catching and a flurry of data released Thursday. The most important reports of the week are likely to be Wednesday’s release of the FOMC Minutes from their January meeting, a meeting at which policymakers did an about-face in their communiques, and Thursday’s release of Existing Home Sales. Market focus will undoubtedly be on the U.S.-China trade talks.
Today’s News – Homebuilder Sentiment: As for this morning, Cleveland Bank President Mester is scheduled to speak at 7:50 a.m. CT. The NAHB is slated to release its February Homebuilder sentiment index. Confidence is expected to tick higher.
Commerce Report – Auto Trade a Threat to National Security: The Commerce Department released its much-awaited report on the auto sector and if American national security interests were being undermined through the global trade of autos. The report found that they were and recommended tariffs as high as 25% on imported cars and auto parts. This finding essentially gives the President the ability to impose tariffs at-will based on his Cabinet’s findings that it is a national security threat. The President now has 90 days to act on the report, or he can delay that 90-day window. Either way, this gives the President more ammunition as he engages in trade discussions with China and, particularly, Europe.
Overnight – Second Week of Trade Talks Begins: Trade talks between the U.S. and China will pick back up today in Washington as the March 1 deadline to reach a deal continues to inch closer. Last week’s negotiations finished with optimistic comments from both sides but admissions that there is still work to be done. Tariffs are set to increase from 10% to 25% on $200B of Chinese imports in less than two weeks unless a deal is struck or enough progress is made to warrant an extension. President Trump said last week he would be open to pushing back the tariff increase if sufficient progress was evident. Chinese equities closed mixed Tuesday after sharp gains on Monday while U.S. investors were closed for a holiday. Also attracting some attention was a dip in Japanese yields that pushed the 10-year JGB yield to -0.04%, its second lowest close since November 2016. Bank of Japan Governor Kuroda told parliament the central bank has plenty of ammunition left to reach its inflation target, and would consider additional easing if needed. In Europe, a sell-off in Italian debt (yields higher) has pushed down yields in Germany and kept a lid on Treasury yields. Italian yields spiked after data showed big declines in industrial sales and orders in December. Looking ahead, an index tracking economic expectations for the Eurozone trended positively for a third month but has now been negative since May 2018. Despite shares of Walmart surging 4.5% pre-market on strong earnings, Dow futures were down 0.2%. Treasury yields were little changed around 7 a.m. CT.
ICYMI – February 15, 2019 Weekly Market Recap: Stocks rallied last week and yields finished higher after a government shutdown was averted and apparent progress in trade negotiations helped counter disastrous retail sales data for December. Early week reports indicated a bipartisan group of lawmakers had reached an agreement to keep the federal government open through September, but included only a percentage of the President’s requested amount for a border barrier. Congress passed the bill Thursday evening and the President signed it Friday, averting a second partial shutdown. Prior to signing the bill, however, the President confirmed his controversial plan to use a national emergency declaration to obtain additional funds for a more expansive barrier on the southern border. Investors were also focused on trade negotiations in China that wrapped up Friday with both sides claiming positive progress and confirming negotiations would continue this week in Washington. During his Friday event on border security, President Trump confirmed mid-week reports that the White House could extend the deadline past March 1. The developments on government funding and trade helped markets regain their footing after tripping Thursday on the biggest decline in retail sales (December) since 2009. Although less of a market focus, there were mixed indications on the labor market (record job openings but elevated jobless claims), economic sentiment (weaker small business optimism but stronger consumer confidence), and inflation (firm CPI and PPI inflation but weaker import prices). Click here to view the full recap.