Moderating trade tensions, U.S. PCE pickup and where will wage growth come in? Find out more in this edition of “The Week in Review.”
Last Week Review
Global equities post first quarterly decline since 2015. Global equities finished up 1.4% last week,1 helped by a strong Monday where U.S. equities gained more than 2.5% due to moderating concerns on U.S.-China trade tensions.2 Non-U.S. developed market equities returned 1.0% last week,3 while U.S. equities gained 1.9%4 and emerging market equities gained 0.2%.5 The 10-year U.S. Treasury yield declined to 2.74%,6 leaving it about 47 basis points (bps) above the 2-year U.S. Treasury yield.7 Last Friday marked the end of the first quarter for financial markets where returns across most major asset classes were negative. Global equities declined in the first quarter (-0.8%),8 with a modest quarterly gain in emerging markets (1.3%)9 failing to offset declines in the U.S. (-0.6%)10 and non-U.S. developed markets (-1.7%).11 Both investment grade and high yield fixed income returns were negative in the quarter12 and we believe due to rising U.S. interest rates and credit spread widening. Real assets did not perform any better with global natural resources,13 global real estate14 and global listed infrastructure15 all posting negative returns as well.
U.S. and China trade tensions ease modestly. The world’s two largest economies both made gestures that helped temporarily ease market concerns on trade tensions. President Donald Trump’s administration indicated it was hopeful it would be able to reach a solution on trade with China, while China offered to ease foreign investment rules and buy more semiconductors from the U.S. Also in Asia, North Korea leader Kim Jong Un visited Beijing to meet with China President Xi Jinping. The North Korean leader confirmed he would meet with the leaders of both the U.S. and South Korea, and left open the possibility of denuclearization, though this would likely be conditional on the U.S. abandoning its military presence on the Korean peninsula.
U.S. PCE Core ticks up from prior level. Personal Consumption Expenditures (PCE) data released on Thursday included a PCE reading of 1.8% year-over-year (y/y) and a PCE Core figure of 1.6% y/y. Both figures ticked up from the prior month but were relatively close to consensus. Outside the U.S., inflation data in Germany was below consensus, but above prior levels, with a Consumer Price Index (CPI) reading of 1.6% y/y compared to the prior level of 1.4% y/y and the consensus estimate of 1.7% y/y.
Concerns on big tech companies lead to bumpy week for the sector. The technology sector gained 1.7% last week despite a tough day on Tuesday.16 We believe the main drivers behind the sell-off were a variety of concerns on increased government scrutiny over data privacy, driverless car testing, and M&A deals. The sector still leads the market by 4.4% year-to-date,17 despite leading by more than 7% in mid-March.18
This Week Preview
Wage growth expected to slightly increase in March jobs report. U.S. labor market data will be released on Friday this week, with consensus expectations calling for a non-farm payrolls figure of 189k jobs added. This figure is less than last month’s strong 313k jobs added, but in-line with the average level over the last twelve months. Wage growth is expected to move a bit higher to 2.7% y/y from the prior level of 2.6% y/y, while the unemployment rate is expected to tick down from 4.1% to 4.0%. The wage growth figure will likely be the most closely followed by investors, though inflation concerns have somewhat taken a backseat to trade tensions. On a related note, the Federal Reserve expects inflation to move closer to its 2% target throughout 2018.
Europe inflation and final global PMIs both expected to remain near prior levels. European inflation is expected to remain relatively close to prior levels when the data is released on Wednesday this week. Europe core CPI is expected to reach 1.1% y/y compared to the prior level of 1.0% y/y. Final Purchasing Managers’ Index (PMI) data will also be released this week across most major regions. While no major changes are anticipated in the data, investors will still be keeping an eye on the releases to confirm that the growth environment remains constructive in Europe, Japan, and the U.S.
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Unless otherwise noted, all opinions expressed in this post are those of the author and do not necessarily represent the views of Northern Trust. Information contained herein is current as of the date appearing only and is subject to change without notice.
Bloomberg, MSCI World Index returns 26Mar2018 – 29Mar2018.
- Bloomberg, MSCI U.S. Equities IMI Index returns 26Mar2018.
- Bloomberg, MSCI ex-U.S. Equities IMI Index returns 26Mar2018 – 29Mar2018.
- Bloomberg, MSCI U.S. Equities IMI Index returns 26Mar2018 – 29Mar2018.
- Bloomberg, MSCI Emerging Market Equities Index returns 26Mar2018 – 29Mar2018.
- Bloomberg, 10-Year Treasury Rate 29Feb2018.
- Bloomberg, 2-Year Treasury Rate 23Feb2018.
- Bloomberg, MSCI World Index returns 02Jan2018 – 29Mar2018.
- Bloomberg, MSCI Emerging Market Equities Index returns 02Jan2018 – 29Mar2018.
- Bloomberg, MSCI U.S. Equities IMI Index returns 02Jan2018 – 29Mar2018.
- Bloomberg, MSCI ex-U.S. Equities IMI Index returns 02Jan2018 – 29Mar2018.
- Bloomberg, Comparison of the Bloomberg Barclays Aggregate Investment Grade Index performance and the Bloomberg Barclays High Yield 2% Capped Index returns for the quarterly period of 02Jan2018 – 29Mar2018. Basis Point (BPS) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.
- Bloomberg, S&P 500® Global Natural Resources Index performance 2Jan2018 – 29Mar2018. The index includes 90 of the largest publicly-traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified and investable equity exposure across 3 primary commodity-related sectors: agribusiness, energy, and metals and mining.
- S&P 500® Real Estate Index performance 02Jan2018 – 29Mar2018. Comprising those companies included in the S&P 500 that are classified as members of the GICS® financials sector. The GICS structure consists of 11 sectors, 24 industry groups, 68 industries and 157 sub-industries into which S&P has categorized all major public companies. GICS is used as a basis for S&P and MSCI financial market indexes in which each company is assigned to a sub-industry, and to a corresponding industry, industry group and sector, according to the definition of its principal business activity.
- Bloomberg, S&P 500® Global Infrastructure Index performance 02Jan2018 – 29Mar2018. The index is designed to track 75 companies from around the world chosen to represent the listed infrastructure industry while maintaining liquidity and tradability. To create diversified exposure, the index includes three distinct infrastructure clusters: energy, transportation, and utilities.
- S&P 500® Technology Index performance 26Mar2018 – 29Mar2018. Comprising those companies included in the S&P 500 that are classified as members of the GICS® technology sector.
- Comparison of the S&P 500® Technology Index performance versus the MSCI U.S. Equities IMI Index returns for the quarterly period of 02Jan2018 – 29Mar2018.
- Comparison of the S&P 500® Technology Index performance versus the MSCI U.S. Equities IMI Index returns for the quarterly period of 02Jan2018 – 16Mar2018.