Tariff concerns, continued upbeat jobs and where will inflation come in? Find out more in this edition of “The Week in Review.”
Last Week Review
All major equity regions finish the week higher. Global equities returned 2.8% last week,1 led by U.S. equities with a 3.6% return.2 Emerging market equities gained 2.0% last week,3 while non-U.S. developed market equities gained 1.9%.4 Global equities are now up 2.8% year-to-date,5 with non-U.S. developed markets lagging at -0.4% in 2018.6
President Trump moves forward with steel and aluminum tariffs. Concerns over U.S. trade policy heightened last Tuesday upon the announcement that National Economic Council director Gary Cohn resigned. Cohn was a key moderate voice on global trade in President Trump’s administration and was respected by financial markets, though his resignation did not come as a complete surprise to many investors. In the day following the resignation, U.S. equity markets opened negatively but ended the day roughly flat.7 On Thursday, President Trump signed proclamations imposing tariffs on steel and aluminum but left flexibility for possible exemptions for key U.S. allies.
Wage growth moves lower in strong jobs report. The U.S. economy added 313k non-farm payrolls in February, while the unemployment rate remained at 4.1%. Wage growth moved down to 2.6% year-over-year (y/y), which was below consensus and the prior reading of 2.8% y/y. The strong jobs report did little to change market expectations for Federal Reserve activity in 2018, where we believe markets continue to expect a March Fed rate hike in addition to two more rate hikes throughout the rest of 2018.
No major updates from the ECB. The European Central Bank (ECB) met last Thursday and left interest rate policy unchanged. The ECB is still on track to continue asset purchases to the tune of €30 billion per month through September 2018, but dropped a commitment to expand its bond-buying program in the event of slowing European economic growth. ECB President Mario Draghi also expressed concerns on the tariffs imposed by the U.S. which he thought could be a detriment to future growth.
This Week Preview
U.S. inflation expected to remain near prior levels. Consumer Price Index (CPI) data will be released on Tuesday this week in the U.S. Both CPI and CPI core are expected to remain close to prior levels. Consensus expectations call for a CPI reading of 2.2% y/y, which is near the 2.1% y/y prior level. The expected CPI core reading of 1.8% y/y is in-line with the prior reading, which was also 1.8% y/y. After heightened concerns of inflation following an increase in wage growth in early February, recent U.S. inflation readings including Personal Consumption Expenditures (PCE) Core and wage growth (see above) have not shown signs of a sharp uptick and have largely remained near levels observed in late 2017.
Investors continue to look for signs of Chinese growth slowdown. Data points on the Chinese economy will be released on Tuesday this week including industrial production and retail sales. Both metrics are expected to modestly tick down from prior levels, with consensus expectations of 6.2% y/y for industrial production and 10.0% y/y for retail sales. Investors will continue to follow Chinese economic data closely for signs of a slowdown, though concerns on this have been mitigated in the short-term given the possibility that President Xi Jinping uses his potentially longer term to increase the quality of Chinese economic growth.
Click here to view the full report.
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 05Mar2018 – 09Mar2018.
- Bloomberg, MSCI U.S. Equities IMI Index returns 05Mar2018 – 09Mar2018.
- Bloomberg, MSCI Emerging Market Equities Index returns 05Mar2018 – 09Mar2018.
- Bloomberg, MSCI World ex-U.S. IMI Index returns 05Mar2018 – 09Mar2018.
- Bloomberg, MSCI World Index returns 02Jan2018 – 09Mar2018.
- Bloomberg, MSCI World ex-U.S. IMI Index returns 02Jan2018 – 09Mar2018
- Bloomberg, MSCI U.S. Equities IMI Index returns 07Mar2018.