Focus remains on trade

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Published Date 4/9/2018

Early this morning the stock indexes a little better, rate market prices a little lower. Trade still the overriding concern in markets; over last weekend President Trump tweet added angst he was ready to add $100B more to his trade tariffs on China; last Monday the DJIA dropped 458 points on the tweet. Yesterday his tweet was seen as a plus for markets, indexes this morning had the DJIA up 165 points in pre-opening trade. Trump yesterday he and President Xi will always be friends no matter what happens with our dispute on trade. “China will take down its Trade Barriers because it is the right thing to do,” that taxes will become reciprocal and a deal will be made on intellectual property. Then Sec Treasury Mnuchin said “I don’t expect there will be a trade war” on CBS, while National Economic Council Director Lawrence Kudlow emphasized that “nothing has happened so far.”

There are no economic reports today, this week markets get PPI and CPI, and Treasury will sell a total of $64B of 3s, 10s, and 30s on Tuesday, Wednesday, and Thursday. No change in markets’ focuses; trade will continue to move markets in the current very uncertain outlook (volatility). Trade re-dos are likely, but re-negotiating trade deals is going to take much longer than some investors are presently thinking; at least a year and likely more like two years of back and forth negotiations. In a sense China does have a leg up on the US; Chinese officials will be very patient having less concern about how any of it will affect its citizens. Here, we are not patient, and politicians usually want immediate results. China will put their citizens and economy on the line with the attitude that in the long run, it will achieve whatever its perceived goals are.

Some progress? North Korea has told the United States for the first time that it is prepared to discuss the denuclearization of the Korean Peninsula when North Korean leader Kim Jong Un meets President Donald Trump, expected next month.

Markets heading into earnings season now; earnings have been robust over the last two quarters, if they remain solid, it will add a little to the underlying economic positive outlooks and add some balance to the trade fears now dominating US and global markets. An example; Morgan Stanley raising its rating to overweight from equal-weight for General Motors shares, citing the profitability of its pick-up truck franchise.

While trade is the issue now, last week Jerome Powell in a speech in Chicago was unrelenting with the Fed’s desire to continue increasing the Federal Funds rate. While mostly impacting short-term rates it also will filter to longer-term rates like mortgages. With the economy is improving and the tax cuts adding further stimulus this year, the Federal Reserve has made it clear that its decade-long policy of extraordinary accommodation is over. Inflation, which is a key focus for longer-dated rates, will get another look tomorrow and Wednesday when PPI and CPI data is reported, both are expected to be moderate but inching higher.

This Week’s Calendar:

Monday no data

Tuesday,

6:00 am March NFIB small business optimism index (106.05 frm 107.6)

8:30 am March PPI (+0.1%, core +0.2%)

10:00 am Feb wholesale inventories (+1.1%)

1:00 PM $30B 3 yr note auction

Wednesday,

7:00 am weekly MBA mortgage applications

8:30 am March CPI (0.0%, core +0.2%; yr/yr overall CPI 2.4% frm 2.2% in Feb, core yr/yr 2.0% frm 1.8% in Feb)

1:00 pm $21B 10 yr note auction

2:00 pm FOMC minutes frm the March meeting March Treasury Budget (-$186.5B)

Thursday,

8:30 am weekly jobless claims (-12K to 230K)

March import and export prices (imports +0.4%, exports +0.3%)

1:00 pm $13B 30 yr bond auction

Friday,

10:00 am U. of Michigan mid-month consumer sentiment index (100.8 from 101.4 in Feb)

Feb JOLTS jobs openings (6.150 mil frm 6.312 mil in Jan)

Source: TBWS

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