More (im)patience. The Federal Reserve (Fed) has promised patience, but financial markets now want more. Fed members unanimously voted to keep rates unchanged in the most recent policy meeting, and Fed Chair Jerome Powell repeated several times in his May 1 post-meeting press conference that further patience is appropriate. That patience, which soothed stocks earlier this year, spurred nearly a 1% intraday selloff in the S&P 500 Index. On the LPL Research blog today, we’ll dissect Powell’s comments, and outline why the Fed’s stance wasn’t what investors were looking for.
U.S. manufacturing sputters. Several reports released today sent mixed signals about the health of global manufacturing. Institute for Supply Management (ISM) and Markit Purchasing Managers’ Index reports showed U.S. manufacturing activity fell to a multi-year low in April. Markit PMI reports for the Eurozone and Germany slightly improved, but both remain in contractionary territory. Global manufacturing activity has declined over the past several months as trade tensions have curbed consumer and business demand. Domestic economic fundamentals are recovering, though, and should support a rebound in manufacturing as the U.S. and China near a resolution (see below).
Trade deal…getting closer. The U.S. and China are reportedly nearing a trade deal that would see the U.S. immediately remove a 10% tariff on a portion of $200B worth of imports, and then phase in lifting duties on the rest of these items “quickly.” Enforcement issues are still being worked out, and Chinese officials continue to resist U.S. demands that it be able to unilaterally retaliate. However, in an effort to move the talks along, President Trump has softened his hardline stance on cyber theft. Terms could be finalized as soon as next Friday.
Productivity pickup. Data out this morning showed worker productivity increased at its fastest pace since 2014 (+3.6% from a year ago), pushing down unit labor costs, which declined 0.9% quarter over quarter compared to consensus expectations for a 2.4% increase. Increasing productivity boosts output without putting undue pressure on labor costs, which combine to increase corporate profitability.
- Durable Goods Orders (Mar)
- Markit/BME Germany Manufacturing PMI (Apr)
- Markit Eurozone Manufacturing PMI (Apr)
- Initial Jobless Claims (Apr. 27)
- Unemployment Rate (Apr)
- Markit US Services PMI (Apr)
- Markit US Composite PMI (Apr)
- ISM Non-Manufacturing Index (Apr)
- Eurozone PPI Report (Mar)
- Eurozone CPI Report (Preliminary, Apr)
- Nonfarm Payrolls Report (Apr.)
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