Chinese negotiators arrive in the U.S. Time is running out to avert the tariff increases slated to go into effect tonight (though actual implementation takes weeks, leaving more time for negotiations). The arrival of China’s chief negotiator in Washington today can be logically seen as a positive sign. We continue to expect a deal given how much both sides have to lose, but it may take several more months of back and forth and more negative headlines in the meantime.
Global stocks slide. Even though officials are meeting for trade talks, the threat of a meaningful escalation looms large in investors’ minds. The MSCI All-World Country Index has dropped 2.2% this week through Wednesday, heading for its biggest weekly slide since December. Emerging-market (EM) stocks have been the main detractor, with Chinese markets poised for a 7% drop this week. Volatility is likely to remain elevated in the near term, and patience will be required until a trade agreement can be reached. The latest flare up of geopolitical risk in the Middle East and the Korean Peninsula isn’t helping.
U.S. earnings demonstrating resilience. Uncertainty can be uncomfortable, but in times of market volatility, we encourage investors to focus on long-term fundamentals instead of short-term noise. U.S. earnings estimates have held up very well over the past month during first quarter earnings season. Overseas earnings expectations, particularly in EM have not held up as well, in part due to the strong U.S. dollar. However, given our continued expectations for solid economic growth out of EM, we expect EM earnings to soon stabilize and begin to turn higher. We’ll outline global earnings projections more in today’s LPL Research blog post.
Producer price growth slows. Producer price growth slowed last month, but sustained a healthy pace overall. The core Producer Price Index PPI, which excludes food and energy prices, rose 2.4% year over year in April, below consensus estimates for a 2.5% gain. Even though core PPI growth slowed, the pace is only slightly lower than the 2.9% cycle high pace reached in December. We still see consumer price growth as stubbornly low compared to wage and producer price increases, and we expect consumer prices to pick up as global headwinds fade.
- PPI Report (MoM, Apr)
- Initial Jobless Claims (May 4)
- Trade Balance (Mar)
- Japan Consumer Confidence Index (Apr)
- CPI Report (MoM, Apr)
- Monthly Budget Statement (Apr)
- Germany Exports (Mar)
- Germany Imports (Mar)
- UK GDP Report (Preliminary, Q1)
- China Foreign Direct Investment (Apr)
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Index data obtained via FactSet
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