World Week Ahead: Trump’s trade moves, US inflation and earnings

Monday 9th April 2018

US President Donald Trump’s ongoing trade sparring, notably with China, will remain in focus this week as investors get ready for the start of earnings season.

"The harder the US pushes on China, the more likely the US may compromise on NAFTA," said Marc Chandler, global head of foreign exchange strategy at Brown Brothers Harriman, CNBC reported. "Trump needs a trade win and the way we bullied South Korea can't be duplicated.

“It would strengthen his hand because it would show America that his way is working,” according to Chandler. “By strengthening his hand domestically, he would be sending a message to China that the country is united."

On Tuesday, all eyes will be on a speech by China’s President Xi Jinping. Trump’s move last Thursday to up the ante with plans for an additional US$100 billion in tariffs on imports from China prompted a swift threat of retaliation.

“The result of this behaviour is to smash your own foot with a stone,” Gao Feng, China’s Commerce Ministry spokesman, told a news briefing in Beijing, according to Reuters. “If the United States announces an additional US$100 billion list of tariffs, China has already fully prepared, and will not hesitate to immediately make a fierce counter strike.”

Wall Street was not impressed either.

On Friday, the Dow Jones Industrial Average retreated 2.3 percent, the Standard & Poor’s 500 Index dropped 2.2 percent, and the Nasdaq Composite Index gave up 2.3 percent.

US Treasuries rallied, pushing yields on the 10-year note six basis points lower to 2.77 percent.

“It’s a reaction to concerns about the administration’s approach to trade,” Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey, told Reuters. “The market has vacillated between writing it off as just talk and assuming there could be a serious problem.”

Also weighing on sentiment was Friday’s Labour Department report which showed US nonfarm payrolls gained a lower-than-expected 103,000 in March, while average hourly earnings rose at a 2.7 percent annual rate.

For the four-day week, the Dow fell 0.7 percent, the S&P 500 slid 1.4 percent and the Nasdaq declined 2.1 percent.

On Wednesday investors will also pore over minutes from last month’s Federal Open Market Committee meeting, during which US central bankers decided to lift their key interest rate, for fresh clues about the potential policy makers might eye more than two additional rate hikes this year.

Last Friday Fed chair Jerome Powell pointed to further gradual rate increases.

“We will continue to aim for 2 percent inflation and for a sustained economic expansion with a strong labour market,” Powell said in prepared remarks for a speech in Chicago. “As long as the economy continues broadly on its current path, further gradual increases in the federal funds rate will best promote these goals.”

Fed officials set to speak this week include Robert Kaplan on Tuesday, Neel Kashkari on Thursday, as well as Eric Rosengren and James Bullard on Friday.

The latest US economic reports slated for release include NFIB small business optimism index, producer price index, and wholesale trade, due Tuesday; consumer price index, and Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims, and import and export prices, due Thursday; and, consumer sentiment and JOLTS, due Friday.

And a fresh round of US corporate earnings will also kick off this week with the latest results from companies including Blackrock, Citigroup, JPMorgan Chase and Wells Fargo.

In Europe, the Stoxx 600 Index finished Friday with a 0.4 percent decline from the previous day’s close. That eased its advance for the week to 1.1 percent, according to Bloomberg.

(BusinessDesk)

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