Market Update: Friday, March 31, 2017

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  • Global stocks lower to end quiet week. (10:24am ET) Despite dipping slightly this morning, domestic markets are still up on the week as the S&P 500 looks to close out the first quarter with around a 6% gain. On Thursday, the Dow, S&P 500, and Nasdaq each rose 0.3%. Financials (+1.2%) was the standout S&P sector, while only utilities (-0.7%) and consumer staples (-0.3%) lost ground. Overseas, the Nikkei (-0.8%) dipped for the second day in a row, but the Shanghai Composite (+0.4%) bucked the negative mood after China’s Purchasing Managers’ Index (PMI) data came in relatively strong; European equities (STOXX 600 -0.1%) are modestly lower in afternoon trading. Meanwhile, WTI crude oil is down but still trading above $50/barrel, COMEX gold ($1249/oz.) is near flat, and the yield on 10-year Treasuries has dropped one basis point (0.01%) to 2.41%.

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  • Income growth steady, but spending slows. Income data for February continued to reflect a strengthening labor market, with personal income rising 0.4%, in line with expectations but a slight decline from January’s upwardly revised 0.5%. Consumers remain cautious, however, with rising incomes not yet reflected in spending patterns. Consumer spending in February decelerated to 0.1%, just missing expectations. Slower spending was also reflected in a higher savings rate, which rose 0.2% to 5.6%. Strong consumer confidence and continued labor market improvement point to the potential for stronger spending as the year proceeds, but an uncertain policy environment may lead to increased caution in the near term.
  • Business activity, jobs highlight the week ahead. Next week’s data is headlined by the job numbers for March on Friday, which includes data on job creation, the unemployment rate, and wage growth. We’ll also get the Institute for Supply Management’s surveys on manufacturing and non-manufacturing activity for March on Monday and Wednesday, respectively. On Wednesday we’ll get more insight on the Federal Reserve’s decision to raise interest rates at its March 14-15 policy meeting with the release of the Federal Open Market Committee (FOMC) meeting minutes. Internationally, we’ll get major surveys on business activity in the Eurozone from Markit and in China via the Caixin PMI, which emphasizes small and mid-sized companies.
  • Chinese PMI data remain relatively strong. Official manufacturing PMI increased to 51.8, better than forecasts and previous data. While this is hardly a robust figure, it is still the strongest official data since early in 2012. Underlying data in exports and new orders also showed growth. Though economists attribute some of the growth to government stimulus last year, they disagree as to the sustainability of this strength. Non-manufacturing data is not forecast, but rose from 54.2 to 55.1. This data will be part of the backdrop when President Trump and Premier Xi meet next weekend.
  • European inflation softens. The Eurozone Consumer Price Index (CPI) reading was softer than expected as full year CPI came in at 1.5%, vs. the 1.8% expected, and also below the previous reading of 2.0%. Core CPI (excluding food and energy) showed a similar pattern, but with lower overall figures. Core CPI was 0.7%, vs 0.8% expected and 0.9% for the prior period. The softness of the data may take some pressure off the European Central Bank to begin tightening monetary policy.

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