Market Update: Thursday, March 15, 2018

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Daily Insights

  • Data in China continues to point to solid steady growth ahead. Although trade policy remains the key issue for global investors at the moment, we should not lose sight of the latest round of solid economic data out of China, including exports, industrial production, capital investment, and retail sales. The solid economic growth outlook in China supports our positive view of emerging market (EM) equities.

  • Trade tensions to moderate? Noted free trade advocate Larry Kudlow’s appointment to head President Trump’s National Economic Council could provide a buffer against some of the more hawkish trade views in the White House. Uncertainty and risk remain, and the trade “tit-for-tat” will probably have a negative, though likely very limited, impact on economic growth and profit margins for steel users. However, we take this news as incrementally positive. Mr. Kudlow also supports a strong dollar and may help arrest the greenback’s slide. Suitable investors may get a chance to add EM equities on weakness amid the flurry of trade headlines. The White House will reportedly announce $30 billion or more in fresh China tariffs in the coming weeks on roughly 100 wide-ranging products.

  • Senate votes to ease oversight on small and medium-sized banks. The move to roll back part of the Dodd-Frank law, which still needs to pass the House, would reduce the number of banks considered systemically important and subject to the toughest oversight by raising the asset threshold from $50 billion to $250 billion. Though widely anticipated, should it become law, the bill may be positive for regional and super-regional banks. We maintain our positive view of the financials sector and banks in particular.

  • What if earnings are strong? After a very impressive fourth quarter earnings season, many on Wall Street expect the strength to continue through this year, as do we. In fact, we upped our S&P 500 EPS target to $152.50, which is a mid-teens growth rate. Aside from the obvious positive that higher earnings are better for stocks, why does it matter to investors? We explain this afternoon on the LPL Research blog.

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Overnight & This Morning

  • U.S. equities opened slightly higher on busy day of data; trade remains in focus.
  • European stocks rise. STOXX Europe 600 +0.4% on strength in insurers and technology; DAX +0.9%, FTSE 100 +0.3%.
  • Asian markets finished mostly higher. Nikkei +0.1%, Shanghai Composite unchanged, Hang Seng +0.3%.
  • Treasury yields inching higher; 10-yr. yield up 0.02% to 2.80%.
  • Commodities: WTI crude oil flat at ~$60.93/bbl. after IEA raises demand forecast, but following weekly inventory builds and OPEC’s higher shale supply forecast; COMEX gold (+0.6% to ~$1331/oz.) up despite dollar strength ; copper higher.
  • Economic releases: March Empire Manufacturing (22.5 vs. 15.0 consensus and 13.1 prior), jobless claims (226K vs. 228K consensus and 230K prior), Philly Federal Reserve Outlook (22.3 vs. 23.0 consensus and 25.8 prior), import prices (0.4% month over month, vs. 0.2% consensus and 0.8% prior); year over year 3.5% in line vs. 3.4% prior.

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Click Here for our detailed Weekly Economic Calendar

Thursday

Friday

  • Housing Starts & Building Permits (Feb)
  • Industrial Production & Capacity Utilization (Feb)
  • Jolts Jobs Openings (Jan)
  • U. of Mich. Sentiment (Mar)
  • Italy: CPI (Feb)
  • Eurozone: CPI (Feb)
  • Eurozone: Labor Costs (Q4)
  • Japan: Industrial Production & Capacity Utilization (Jan)
  • China: New Loan Growth & Money Supply (Feb)

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

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Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

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