Weekly Market Update - March 5

Posted by FlexShares on Mar 5, 2018 10:00:00 AM


Trade concerns, upbeat growth and what will wage growth be? Find out more in this edition of “The Week in Review.”

Last Week Review

Equities fall on global trade concerns late in the week. Global equities dropped 2.4% last week,1 with negative returns across each major region. U.S. equities decreased 1.8%,2 while non-U.S. developed market equities dropped 2.8%3 and emerging market equities dropped 2.6%.4 Year-to-date equity returns across the U.S. (0.9%)5 and emerging markets (2.0%)6 remain positive, but dropped back into negative territory in non-U.S. developed markets (-2.2%).7 Italian equity and bond markets were relatively calm8 during the week leading up to last Sunday’s election, though final results were not available at the time of publication.

President Trump announces tariffs on steel and aluminum. President Donald Trump released trade proposals calling for a 25% tariff on steel and a 10% tariff on aluminum. Global equities dropped last Thursday due to concerns of heightened global trade tensions amid potential retaliatory measures taken by U.S. trading partners. The proposals have yet to be implemented, though they still represent a significant course of action on trade from President Trump after tough trade rhetoric over the past year. The announcements also come at a time of increased concerns on White House personnel with additional staff departures and recent developments with some personnel seeing their security clearances reduced.

Fed Chair Powell offers upbeat growth outlook. Federal Reserve (Fed) Chair Jay Powell testified before Congress last week, where he shared his view that the U.S. economic outlook has improved since December which continues to support the case for gradual interest rate increases. His comments led some market participants to think that four rate hikes in 2018 is now more likely, though we believe markets overall continue to expect a Fed rate hike in March followed by about two more hikes in the rest of 2018. Inflation data last week remained near prior levels, with Personal Consumption Expenditures (PCE) Core remaining unchanged from the prior month at 1.5% year-over-year (y/y).8

China opens path for Xi Jinping to serve additional terms. China appears to be pivoting away from consensus-driven leadership as it voted to remove the previous two-term limit on its presidency. This event had little financial market impact last week, but will be significant in the long-term as it relates to factors such as China’s growth trajectory as well as any progress towards economic and financial market reforms.

This Week Preview

BOJ meets this week as Kuroda eyes path to normalization. The Bank of Japan (BOJ) will meet on Friday and is not expected to make an interest rate policy change. However, future BOJ policy will be especially in focus after BOJ Governor Haruhiko Kuroda’s recent comments about considering an exit from monetary stimulus in 2019 after hitting the BOJ’s 2% inflation target in 2019. This marks the first time Kuroda has mentioned a specific timetable for an exit from accommodative policy.

Wage growth expected to remain near prior level. Labor market data in the U.S. will be released on Friday with expectations for a 205k increase in non-farm payrolls. Wage growth is expected to remain close to the prior level at 2.8% y/y, while the unemployment rate is expected to tick down to 4.0%. The wage growth metric will be closely eyed by investors, especially those concerned with a near-term uptick in inflation as last month’s increase was thought to contribute to some of the equity market weakness in early February.

No policy change expected in this week’s ECB meeting. The European Central Bank (ECB) meets on Thursday this week, with no expectations for a change in interest rate policy. Investors will continue to look for clues on the ECB’s future policy plans in 2018 and beyond as core inflation levels in Europe remain contained at around 1%. The ECB currently plans to purchase €30 billion in bonds per month through September 2018.

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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.

Past performance is no guarantee of future results. It is not possible to invest directly in any index and index performance returns do not reflect any management fees, transaction costs or expenses.

End Notes

  1. 1. Bloomberg, MSCI World Index returns 26Feb2018 – 02Mar2018.
  2. 2. Bloomberg, MSCI U.S. Equities IMI Index returns 26Feb2018 – 02Mar2018.
  3. 3. Bloomberg, MSCI World ex-U.S. IMI Index returns 26Feb2018 – 02Mar2018.
  4. 4. Bloomberg, MSCI Emerging Market Equities Index returns 26Feb2018 – 02Mar2018.
  5. 5. Bloomberg, MSCI U.S. Equities IMI Index returns 02Jan2018 – 02Mar2018
  6. 6. Bloomberg, MSCI Emerging Market Equities Index returns 02Jan2018 – 02Mar2018
  7. 7. Bloomberg, MSCI World ex-U.S. IMI Index returns 02Jan2018 – 02Mar2018
  8. 8. Bloomberg, FTSE MIB (Milano Indice di Borsa) and the Italy Generic Govt 10Y Bond returns 26Feb2018 – 02Mar2018.
  9. 9. Bloomberg, 12-Month Percentage Change – Core Personal Consumption 01Mar2018. Reported monthly by the Bureau of Economic Analysis, Department of Commerce. The personal consumption expenditure price index (PCEPI) is one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy. Of all the measures of consumer price inflation, the Federal Reserve believes that the PCEPI includes the 
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