Trade barbs, potential tech regulation and will CPI stay above 2%? Find out more in this edition of “The Week in Review.”
Last Week Review
Trade barbs drag global equities lower late in the week. After increased trade war rhetoric between the U.S. and China, global equities declined 0.6% last week.1 U.S. equities (-1.3%)2 and emerging market equities (-0.6%)3 were both in the red. Non-U.S. developed market equities managed a small gain (0.4%)4 – but we believe will likely give up that gain in early-Monday trading as non-U.S. markets catch up with the late Friday U.S. sell-off. The year-to-date return for global equities remains negative (-1.5%),5 driven lower by developed markets (U.S. and developed ex-U.S. returning -1.9%6 and -1.3%,7 respectively) only slightly offset by emerging market equities’ 0.7% year-to-date gain.8
U.S. and China continue to exchange rhetoric on trade. The U.S. and China both announced additional details around tariff measures aimed at one another. The U.S. announced 25% tariffs on a variety of Chinese industrial and technology products; while China, in response, revealed 25% tariffs on U.S. exports including airplanes, agricultural products and cars. Statements by the two countries have varied, with a general pattern of strongly worded statements followed by later comments aimed to help moderate tensions. However, the dialogue took a sharper turn late last week with additional measures being threatened by both sides. That said, the tariffs announced by each side have yet to be implemented. Equity markets fluctuated throughout the week largely in reaction to the rhetoric, though the market moves were generally less pronounced than when trade concerns initially surfaced in March.
Wage growth ticks up in underwhelming jobs report. In last Friday’s labor market report, the nonfarm payrolls added figure of 103k fell well short of both consensus (185k) and the prior reading (326k). The three-month average jobs added figure is still a solid 202k. Wage growth ticked up to 2.7% year-over-year (y/y), which was consistent with consensus expectations. The unemployment rate was unchanged from the prior month at 4.1%. Despite the weaker than expected jobs figure, the U.S. growth outlook remains constructive with a final Manufacturing Purchasing Manager’s Index (PMI) reading of 55.6 in addition to above-consensus car sales data last week.
Tech regulation concerns continue but performance remains solid. Concerns around increased regulatory scrutiny for large technology companies continued last week especially for Facebook (FB) and Amazon (AMZN). Additional concerns on the technology sector remain in place including increased scrutiny over driverless car testing, mergers and acquisition activity, and data privacy. Nonetheless, performance for the technology sector remains 3.3% ahead of the S&P 500 year-to-date.9
This Week Preview
Earnings season kicks off on Friday. Earnings season will begin on Friday this week with large banks reporting, including: Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo (WFC). This quarter marks the first earnings season since U.S. tax cuts have been enacted. We believe estimates currently call for revenue growth of 7.3% y/y and earnings growth of 18.4% y/y. Investors will be monitoring company commentary around impacts from the tax cuts and U.S.-China trade tensions.
U.S. core inflation expected to move above 2%. U.S. inflation data will be released on Wednesday this week, with our expectations for a Consumer Price Index (CPI) reading of 2.4% y/y, which is above the prior level of 2.2% y/y. Core CPI is expected to move up to 2.1% y/y from the prior reading of 1.8% y/y, which would mark the first time that the data series has been above 2% since early 2017. Although the Federal Reserve (Fed) expects inflation to move modestly higher in 2018, core Personal Consumer Expenditures (PCE), which is the Fed’s preferred inflation metric, remains below 2% at 1.6% y/y.
Xi expected to speak at economic forum. China, this week, hosts the Boao Forum for Asia, an economic conference where China President Xi Jinping will speak. Investors will be looking to see if Xi reveals additional information on China’s plan to address rising trade tensions with 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 02Apr2018 – 06Apr2018.
- Bloomberg, MSCI U.S. Equities IMI Index returns 02Apr2018 – 06Apr2018.
- Bloomberg, MSCI Emerging Market Equities Index returns 02Apr2018 – 06Apr2018.
- Bloomberg, MSCI ex-U.S. Equities IMI Index returns 02Apr2018 – 06Apr2018.
- Bloomberg, MSCI World Index returns 02Jan2018 – 06Apr2018.
- Bloomberg, MSCI U.S. Equities IMI Index returns 02Jan2018 – 06Apr2018.
- Bloomberg, MSCI ex-U.S. Equities IMI Index returns 02Jan2018 – 06Apr2018.
- Bloomberg, MSCI Emerging Market Equities Index returns 02Jan2018 – 06Apr2018.
- S&P 500® Technology Index performance 02Jan2018 – 06Apr2018. Comprising those companies included in the S&P 500 that are classified as members of the GICS® technology 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.