Market Update: Thursday, April 5, 2018

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Daily Insights

  • Several developments have helped market participants come around to the view that a full-blown trade war will be averted. First, yesterday’s comments from National Economic Council head Larry Kudlow, which helped drive the market’s sharp intra-day reversal, suggested a less hawkish trade stance from the Trump administration. Second, Chinese officials (and Mr. Kudlow) have expressed willingness to negotiate. Third, policymakers have several months to negotiate, meaning the tariffs may not go into effect at all. And last, the political implications-including potential harm to U.S farmers from China’s tariffs on soybeans-provide strong incentive for the White House to compromise ahead of midterm elections.

  • Tariffs’ economic impact likely limited. Though disruption to corporate supply chains and higher prices for U.S. consumers are still risks surrounding escalating trade tensions, we believe it is important to keep in mind that the total dollar value of tariff actions to date is only about $32 billion, compared with potentially $800 billion in fresh stimulus being put into the U.S. economy in 2018 alone from tax cuts, the recently passed federal spending bill, and repatriation of overseas cash. Estimates suggest a potential negative impact of 0.3% on U.S. gross domestic product (GDP) at most, and an even smaller potential hit to China’s GDP.

  • Signs the bottoming process is progressing. It is encouraging that support for the S&P 500 Index has held at an upward sloping 200-day moving average (2591 on the index as of 4/4/18). Some progress has been made in terms of dampening overly-positive sentiment, the series of retests, and sharp reversals that add to the evidence that the stock market’s bottoming process has progressed from a technical perspective. Looking ahead, we would like to see more up-volume, stronger breadth readings, and more sustained momentum. Earnings season, which begins next week, may provide a catalyst for more progress, in addition to potentially good news from tomorrow’s jobs report (consensus estimates are for 185K jobs, down from 313K in February; and 2.7% wage inflation, up from 2.6% in February).

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Thursday

  • Challenger Job Cuts (Mar)
  • Weekly Jobless Claims (Mar 31)
  • Trade Balance (Feb)
  • Bostic (Dove)
  • Germany: Factory Orders (Feb)
  • Italy: Markit ADACI Italy Services PMI (Mar)
  • France: Markit France Services PMI (Mar)
  • Germany: Markit Germany Services PMI (Mar)
  • Eurozone: Markit Eurozone Services PMI (Mar)
  • UK: Markit UK Services PMI (Mar)
  • Eurozone: PPI (Feb)
  • Eurozone: Retail Sales (Feb)
  • RBI: Repurchase Rate (Apr 5)
  • ECB: Monetary Policy Meeting Accounts

Friday

  • Change in Non-farm, Private & Manufacturing Payrolls (Mar)
  • Unemployment Rate (Mar)
  • Average Hourly Earnings (Mar)
  • Average Weekly Hours (Mar)
  • Labor Force Participation & Underemployment Rates (Mar)
  • Consumer Credit (Feb)
  • Germany: Industrial Production (Feb)
  • Japan: Leading Index (Feb)

 

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