Market Summary
Equities could see more volatility in this short trading week (with the markets closed on Friday) following the worst week for the U.S. equity markets since January 2016. The Dow, S&P 500, and Nasdaq indices respectively lost 5.7%, 5.9%, and 6.5% this past week, only to rebound upward by 2.7%, 2.8%, and 3.3% on Monday (the largest daily gains in over two and a half years). The latest bout of market uncertainty comes as investors weigh the implications of a trio of potential market headwinds including U.S. monetary tightening, trade tensions between the U.S. and China, and worries of a slowdown in the highflying tech sector. Oil also surged on speculation sanctions on Iran will be re-imposed.
News out of Washington is expected to keep investors on the edge of their seats in the near term, after President Trump announced tariffs on $60 billion of Chinese goods last week. China's ambassador to the U.S., Cui Tiankai, wouldn't rule out the possibility of the Asian nation reducing purchases of US Treasuries in response to the tariffs. However, trade fears eased on Monday following the revelation that Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He have been negotiating behind the scenes, leading to Monday's significant equity market rebound. Despite contentious public rhetoric, Messrs. Mnuchin and Liu are optimistic they can reach a deal to limit tariffs, open Chinese markets to U.S. financial institutions, and resolve infringement issues of U.S. intellectual property in China.
Additionally, jitters will continue around the Federal Reserve's ability to successfully normalize monetary policy without hiking rates too quickly thereby choking off the current historic bull market run. The markets have already been bracing for the possibility of a slowing expansion as the Federal Reserve reiterated its commitment to potentially three further interest-rate increases after Wednesday's hike.
Meanwhile, the U.S. 10-Year Treasury yield continued to edge lower by 2 bps to 2.83% as investors increasingly demanded shelter from equity market volatility.
Economic Highlights
- Monetary Policy: The Federal Reserve raised rates by 0.25% for the sixth time since its first rate hike in December 2015. The FOMC meeting was slightly hawkish, but broadly in line with market expectations. The Fed upgraded its expectations for GDP growth for the coming year, which could indicate a quicker rate hike path.
- Foreign Exchange: The US Dollar weakened against most major currencies-including the Japanese Yen, the Euro, and the Pound-as the trade rhetoric between the Trump administration and China heightened.
- Manufacturing: US durable goods orders increased in February, above consensus, reflecting an increase in commercial aircraft and defense goods orders. New home sales edged lower in February; however, previous readings were revised upward.
- Consumption: The US composite Purchasing Managers' Index (PMI) fell to 54.3, a two-month low. Additionally, the Euro area composite PMI fell to 55.3 in March, below market consensus, marking a second consecutive decline from its 12-year high in January.
US Economy - The Week Ahead
Tuesday, 3/27/2018
Conference Board Consumer Confidence Survey - Consensus Estimate: 131, Prior: 130.8
Wednesday, 3/28/2018
US GDP 2017YE - Consensus Estimate: 2.7% year-over-year growth, Prior: 2.5% year-over-year growth
Thursday, 3/29/2018
University of Michigan Consumer Confidence Survey - Consensus Estimate: 102, Prior: 102
Jobless Claims - Consensus Estimate: 230,000, Prior: 229,000
Personal Consumption Expenditure (PCE) price index - Core Consensus Estimate: 1.6% y/y
February Personal Income & Spending Growth - Consensus Estimates: 0.5% & 0.2%, respectively
Friday, 3/30/2018
Markets closed for Good Friday
