Your Weekly Update – Tariffs and Testimony Rattle Markets

Weekly Performance

US: S&P 500 Index -2.04%, Dow -3.05%, Nasdaq -1.08%
Europe: STOXX Europe 600 -3.70%, German DAX -4.57%, France CAC 40 -3.40%, U.K. FTSE 100 -.95%
Asia: Japan Nikkei -3.25%, China Shanghai Composite -1.05%, Korea KOSPI  -2.01%
10-Year Treasury yield: -1 basis point to 2.86%, WTI crude oil -3.34%, COMEX gold -.53%

Global markets moved sharply lower this week, with the sell-off accelerating on Thursday following President Donald Trump’s announcement that the U.S. would impose tariffs on steel (25%) and aluminum (10%). Automakers, already fighting slower sales and rising interest rates, were among the hardest hit; while American steelmakers, a notably smaller industry, rallied. Approximately six million people work in steel dependent manufacturing fields in the United States, and legislators will fight to protect them, and their own re-election prospects, in the coming months. Overseas, China has already said it will take “necessary measures” against tariffs, and the European Union trade commissioner said the EU would consider imposing their own “safeguard” tariffs on imports of steel and aluminum. However, while the EU accounted for roughly 10% of steel imports to the U.S., China only accounted for roughly 2.2%. In addition, steel and aluminum account for roughly 2% of world trade, so the direct impact to the economy would be small.

Elsewhere, several days of Congressional testimony from new Federal Reserve (Fed) Chair Jerome Powell also boosted volatility and Treasury yields earlier in the week. In his testimony, he told members that his outlook for the economy had strengthened since December, though there is no evidence it’s overheating; wage inflation has not reached a point of acceleration, nor does he see decisive evidence that a continued decline in the unemployment rate or a reduced slack in the labor market are the culprits behind the recent pickup in wage growth. Consequently, he expects the central bank to continue its rate-hike campaign into next year to avoid falling behind the curve. Those comments, as well as news of the tariffs, offset a string of positive global Purchasing Managers’ Index results and favorable consumer price and income data. Additionally, jobless claims that came in at levels last seen in 1969, suggesting an increasing demand for labor, failed to buoy positive sentiment.

Next week’s domestic economic data includes factory orders, international trade data, the EIA Petroleum Status Report, the Fed’s Beige Book, and the closely-watched Employment Situation (nonfarm payrolls) Report on Friday. Overseas the docket includes Eurozone and Japanese gross domestic product on Wednesday, followed by monetary policy announcements from the European Central Bank and Bank of Japan on Thursday.


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