- U.S. markets closed lower for the week, driven by hawkish Federal Reserve (Fed) takeaways, domestic tariff announcements. Friday’s performance ended mixed. S&P 500 Index -0.5%, Nasdaq +1.1%, Dow -0.3%, Russell 2000 +1.7%.
- Healthcare (+1.0%), technology (+1.0%) led Friday performances. REITs (-0.4%) and materials (-0.3%) were the laggards.
- Positive breadth on NYSE (1.7:1); trading volume below average (~91% of 30-day avg.).
- Treasuries yields bounced higher; 10-yr. note yield up 6 basis points (0.06%) to 2.86%.
- Commodities: WTI crude oil strengthened (+0.64% to $61.38/bbl.); COMEX gold +1.35% to $1323/oz.; industrial metals mixed; U.S. dollar weakened vs. most major crosses.
- Economic data: U.S consumer sentiment came in above expectations (99.7 vs. 99.5); tax reform likely helped. North American oil rig count came in near flat, weekly total -1 from 1284 to 1283.
Overnight & This Morning
- U.S. equities opened slightly lower as markets focus on trade and Italian elections.
- European stocks mostly higher despite political uncertainty in Italy. STOXX Europe 600 +0.6%, DAX +0.8%, FTSE 100 +0.4%, Italian FTSE MIB -0.8%. Euro little changed.
- Asian markets finished lower; focus also on protectionism, potential implications of Italian election. Nikkei -0.7%, Shanghai Composite +0.1%, Hang Seng -2.3%.
- Treasury yields inching down; 10-yr. yield down 2 basis points (0.02%) to 2.84%.
- Commodities: Oil moving up (+0.7%) to ~$61.70/bbl., gold (+0.2% to ~$1325/oz.) getting some safe-haven flows; copper slightly lower.
- Economic releases: February non-manufacturing ISM Index easily topped expectations (59.5 vs. 58.8), driven by strong new order and backlog figures.
- Short-term impact of tariffs likely small, but risk of escalating trade war looms. Following up on Friday’s blog post, the market’s reaction to the Trump administration’s announcement of a 25% tariff on steel and a 10% tariff on aluminum likely was likely unmerited when viewed in isolation. While some allies may receive better treatment–possibilities include Canada (16% of total metric ton steel imports), Brazil (13%), South Korea (10%), European Union (10%), and Mexico (9%)–given the increased uncertainty it signals around broader trade policy and the potential for retaliation among impacted countries, the market’s reaction was justified and trade risk may be a source of increased volatility moving forward. Key items to watch out for include changes in the tone around NAFTA negotiations, increased attention to intellectual property violations in China, and signals that the Trump administration will try to weaken the function of the World Trade Organization (WTO) if it seeks to impose penalties. Nevertheless, as we detail later today in this week’s Weekly Economic Commentary, economic fundamentals remain strong and we believe trade concerns are unlikely to derail the bull market.
- European markets generally calm after Italian election results. After dodging the populist-sentiment wave in the Netherlands and France last year, nationalism fears may come to the fore again in Europe given Sunday’s general election in Italy. While the populist 5-STAR Movement, which has been against forming a coalition, was the big winner, the group failed to achieve a majority. This leaves the door open for the possibility of another coalition between the center-right (Berlusconi) and the center-left (Renzi) which would be relatively more favorable for markets. A potential coalition between 5-STAR and the euro-skeptic Northern League, though perhaps unlikely, would be less market friendly. Financial markets in Italy have held up well thus far in 2018 despite the political uncertainty. The MSCI Italy Index lost about 3.0% in euro terms on Thursday and Friday, but remains slightly positive year to date; while the Italian 10-year bond yield remains well behaved and yielded just 2.0%. In today’s session, Italian equities are down about 1%, while the Italian 10-year yield is up about 5 basis points (0.05%). We continue to position portfolios favoring emerging markets over developed, for reasons including political uncertainty in Europe.
- Happy birthday. The bull market officially turns nine on Friday. We’ll take a closer look at this rally and why we think it can make it to 10 next year in this week’s Weekly Market Commentary. Additionally, we will show where this bull market ranks all-time on the LPL Research blog later today .
- Week ahead. This 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.
- Markit Services PMI (Feb)
- ISM Non-Mfg. Index (Feb)
- Italy: Markit ADACI
- Italy Services PMI (Feb)
- France: Markit France Services PMI (Feb)
- Germany: Markit Germany Services PMI (Feb)
- Eurozone: Markit Eurozone Services PMI (Feb)
- UK: Markit CIPS
- UK Services PMI (Feb)
- Eurozone: Retail Sales (Jan)
- Factory Orders (Jan)
- Durable Goods Orders (Jan)
- Australia: GDP (Q4)
- RBA: Interest Rate Decision
- China: Foreign Reserves (Feb)
- ADP Employment Report (Feb)
- Non-Farm Productivity (Q4)
- Unit Labor Costs (Q4)
- Trade Balance (Jan)
- Beige Book
- Eurozone: GDP (Q4)
- Bank of Canada: Interest Rate Decision
- Japan: Current Account Balance (Jan)
- China: Foreign Direct Investment (Feb)
- Japan: GDP (Q4)
- Japan: Economy Watchers Survey (Feb)
- China: Imports & Exports (Feb)
- Germany: Factory Orders (Jan)
- BOJ: 10-Yr Yield Target
- BOJ: Monetary Policy Statement
- BOJ: Policy Balance Rate
- ECB: Main Refinance Rate
- ECB: Marginal Lending Facility
- ECB: Deposit Facility Rate
- Japan: Money Supply (Feb)
- Japan: Labor Cash Earnings (Jan)
- China: CPI & PPI (Feb)
- Change in Nonfarm, Private & Mfg. Payrolls (Feb)
- Unemployment Rate (Feb)
- Average Hourly Earnings (Feb)
- Average Weekly Hours (Feb)
- Labor Force Participation & Underemployment Rates (Feb)
- Wholesale Inventories (Jan)
- Wholesale Trade Sales (Jan)
- Germany: Industrial Production (Jan)
- France: Industrial Production (Jan)
- Italy: PPI (Jan)
- UK: Industrial Production (Jan)
- UK: NIESR GDP Estimate (Feb)
- China: Money Supply (Feb)