Market Summary
Markets started this week with caution amid tensions in Washington D.C.and important economic events on the horizon. By and large, market participants expect a 0.25% rate hike from Wednesday's Federal Reserve meeting and will be listening closely for any indication of future rate strategy with some pundits calling for the potential of four rate hikes this year.
In addition to the outlook on the Fed's monetary tightening, concerns over the potential for a global trade war coupled with the instability in the Trump administration caused some heightened volatility this past week in global equity markets. Earlier this month, President Trump signed two edicts imposing charges on steel and aluminum imports, which sparked fears of retaliatory trade actions from other nations and led to the resignation of Gary Cohn from his post as director of the National Economic Council. Cohn was a supporter of open international trade policy and strongly opposed implementation of the tariffs. Trump also fired Rex Tillerson from his post as Secretary of State this last week, replacing him with CIA Director Mike Pompeo.
The US stock market dipped overall last week with the S&P 500 falling 1.21% to $2,752, as of Friday'smarket close and the Dow posting a 1.52% loss, falling to $24,191. Global equity indices were mixed with the aggregate MSCI World index posting a slight loss of -0.67% on the week.
From a sector perspective, the majority of industries experienced a pullback in their YTD returns with the exception of the utilities sector, as this sector is generally less sensitive to cyclical fluctuations.
U.S. 10-Year Treasury yields fell by 4 bps to 2.85% as some investors increased demand for less risky assets as they assess the implications of geopolitics and trade policy on the economic outlook.
Economic Highlights
- Inflation: The US Producer Price Index (PPI) increased by 0.2% month-over-month in February (2.8% year-over-year, slightly more than expected due to a rise in the costs of services. The US Consumer Price Index (CPI) rose 0.15% month-over-month (2.2% year-over-year), which was generally in line with expectations. Inflation in Eurozone was weaker than expected, with February's CPI reading coming in at 1.1% year-over-year.
- The University of Michigan's consumer sentiment survey rose to 102, which is the highest reading in 14 years and surpassed expectations. Rising sentiment is partly attributed to the effects of tax reform in the US, which outweighed the potentially negative assessment on new US tariffs on steel and aluminum imports.
- Consumer Spending: Headline and core retail sales declined for the third straight month with a slight drop of -0.1% month-over-month in February. Retail sales ex-autos data was also released below market expectations, increasing by 0.2% month-over-month.
US Economy - The Week Ahead
Tuesday, 3/20/2018
No Data
Wednesday, 3/21/2018
Current Account Balance - Consensus Estimate: -$125 billion
Existing Home Sales: 5.4 million
FOMC Rate Decision - Statement, Projections, and Press Conference
Thursday, 3/22/2018
Initial Jobless Claims - Consensus Estimate: 225,000
US Manufacturing & Services PMI - Consensus Estimate: 55.5, Prior: 55.3
Federal Housing Finance Agency House Price Index - Consensus Estimate: 0.4%
KC Fed Survey
Friday, 3/24/2018
Durable Goods Orders - Consensus Estimate: 1.7%, Prior: - 3.6%
New Home Sales - Consensus Estimate: 624,000
