Market participants may be suffering from a bad case of whiplash. Rhetoric from Washington regarding tariffs on Chinese imports and trade wars seems to swing like a pendulum, roiling the markets. Further, given the kickoff to the earnings season coupled with mounting geopolitical tensions with Syria, it does not seem likely that the volatility rollercoaster is ending anytime soon.
I. Tariffs
While the market was digesting the possibility of more tariffs on Chinese imports by President Trump from the week prior, the President backpedaled his stance on trade with China, on Thursday, noting the possibility of the U.S. rejoining the Trans-Pacific Partnership free-trade deal. Trump pulled the U.S. out of the pact in 2017. The market rallied on the back of the announcement/tweet with 10-year US Treasuries rising 5.2bps to 2.829%. Meanwhile, discussions regarding sanctions on Russian companies continue to keep the market on edge.
II. Earnings Season Kickoff
Financials kicked off the earnings season, with better-than-expected results from the likes of JP Morgan and Citigroup, as recent tax legislation, a stronger economy and increased volatility helped earnings results. Nevertheless, the stock market took a hit on Friday. The selloff, especially in financials, could partly be due to profit taking.
III. Economic Outlook
Earlier on Friday, the market received a jolt with upbeat sentiments from the Fed’s Eric Rosengren. Rosengren noted the likelihood of the Fed raising rates three more times this year given the momentum in the economy. He also expressed the risks of a trade disruption and the difficulty in measuring its impact.
Minutes from last month’s FOMC meeting, released on Wednesday, reflected a positive outlook on the U.S. economy. Policymakers unanimously felt that inflation would rise, with a large majority seeing the advent of a trade war as a downside risk for the U.S. economy.
Rosengran’s comments and the release of the minutes propelled the yield curve to bear flatten, with short-term rates rising more than their longer-term counterparts. The gap between the 2-year and 10-year yields hit 45.7 basis points on Wednesday, the flattest since September 2007, according to Reuters data. The gap was at 46bps at the time of this writing.
Across the pond, dovish sentiments emanated from the European Central Bank’s minutes from the bank’s meeting last month, causing a rally in both the sterling and the USD against the Euro. The Thursday release indicated concerns on the recent rise of the Euro and its negative impact on inflation. The committee was also concerned about the potential adverse result of trade conflicts.
This week…
The market will pay close attention to U.S. March retail sales, RBA meeting’s minutes, CNY GDP, GBP average earnings, GBP/EUR/NZD CPI, the BoC’s rate decision and CPI data, AUD unemployment and any outcome from the IMF meeting.
Key U.S. Data includes:
March retail sales (Monday), Empire State manufacturing survey, business inventories, Housing starts (Tuesday), building permits, industrial production, capacity utilization, MBA mortgage applications (Wednesday), Fed’s Beige Book, Philadelphia Fed Manufacturing survey, EIA natural gas storage change, weekly jobless claims and Baker-Hughes rig count (Friday).
Fed officials scheduled to speak include Raphael Bostic (Monday), John Williams (Tuesday), Charles Evans, William Dudley (Wednesday), Loretta Mester (Thursday), Evans (Friday) and Williams.
Overseas Economic Data includes: CNY retail sales (Tuesday), CNY’s National Bureau of Statistics is in charge of statistics and economic accounting in China, AUD RBA minutes, CNY industrial production, CNY GDP, JPY industrial production, GBP average earnings, EUR economic sentiment survey, JPY trade data, GBP retail price index (Wednesday), GBP PPI, GBP CPI, EUR CPI, NZD CPI, AUD bank business confidence (Thursday), AUD unemployment, GBP retail sales, CAD ADP employment, JPY CPI, German PPI (Friday) and Bank of Canada CPI.
Key meetings abroad include Eurogroup meeting – attended by the Eurogroup President, the Finance Minister of each member state of the Euro area (Wednesday), Bank of Canada rate decision and statement, Eur EcoFin (Thursday), IMF (Friday).
