Volatility created jitters in both the equity and bond markets throughout the first quarter of the year and there are no signs of it abating. Speculation on Federal Reserve activity, inflation concerns, strong economic indicators, tariffs and increased oversight, particularly on the technology sector all fueled the tumultuous ride market practitioners endured. The VIX index, which measures volatility in the equities market, saw wide swings throughout the quarter and jumped up 81% from the past quarter’s lows.
The S&P 500 equity index ended the quarter down about a percentage point closing out the first quarter at 2,640.87, with a rebound in tech stocks. Oil prices enjoyed their third consecutive quarterly gain with Brent Crude closing out at $69.375/bbl.
Ten-year US Treasury yields ended the quarter at 2.74%. Yields were in part lower due to consumer spending data (see below) and as investors bought Treasuries and increased cash as they rounded out quarter end positions.
As the market moves to the second quarter this week, jitters will likely be in part due to: the potential impact of a trade war/tariffs, rising inflation and further tightening by the Fed.
Key highlights over the last week include:
- The market continued to see strong data flowing through with weekly jobless claims coming in better-than-expected and to the lowest levels seen since 1973.
- Consumer confidence measures per the Michigan sentiment survey also reflected a strong economic outlook, reaching levels not seen since 2004.
- Consumer spending lagged behind income growth for the second month. Inflation also edged higher.
- Three-month USD LIBOR reached levels not seen in almost a decade, closing out at 2.312%. The borrowing rate tends to rise as the Federal Reserve embarks on a tightening policy path. At its most recent meeting, the Fed hiked rates and changed their economic outlook with a more bullish tone.
- Volatility continued to plague equity markets, particularly within the tech sector after the recent announcement on the U.S. imposing tariffs on China. Facebook’s data breaches and President Trump’s critiques regarding Amazon hit headlines throughout the week.
This week…
As the second quarter of 2018 kicks off, market participants will keenly await March unemployment data to be released at the end of the week. Many international markets are closed for Easter Monday.
Key U.S. Data includes:
ISM data (Monday), March PMI data (Wednesday), ISM non-manufacturing, Feb. factory orders, March ADP employment change, trade balance (Thursday), weekly jobless claims, EIA Natural Gas storage change, March unemployment rate (Friday), labor force participation rate, March average hourly earnings (y-o-y), consumer credit change.
Fed officials scheduled to speak: Neel Kashkari, William Dudley (Monday and Tuesday), James Bullard (Wednesday), Loretta Mester, Raphael Bostic (Thursday) and Charles Evans (Saturday).
The Federal Reserve Bank of New York will also begin publishing the Treasury repo reference rates on Tuesday, April 3, 2018, at approximately 8AM EST. One of the three reference rates being published is SOFR, the expected replacement for USD LIBOR.
Overseas Economic Data includes: Japanese manufacturing (Sunday), CNY manufacturing (Monday), CAD Manufacturing PMI, German retail sales (Tuesday), German Manufacturing PMI, Swiss retail sales, Eurozone Manufacturing PMI, NZD Global Dairy Trade index, AUD retail sales (Wednesday), CNY PMI, Eurozone CPI, AUD trade balance (Thursday), Swiss CPI, Eurozone Services PMI, GBP Services PMI, German Services PMI, CAD trade data, JPY household spending, ECB monetary Policy Meeting Accounts, German industrial production (Friday), CAD housing starts, CAD employment data, CAD Ivey PMI, CNY FX reserves (Saturday).
Upcoming Foreign Central Bank Activity:
- Reserve Bank of Australia rate announcement (Thursday). RBA is expected to keep the key overnight rate unchanged at 1.5%.
