- U.S. weekly market focus is on Trump-Xi meeting and payroll report
- U.S. stock market continues to show resilience
- U.S. ISM manufacturing index expected to back off from 2-1/2 year high
- U.S. vehicle sales expected to remain relatively strong
U.S. weekly market focus is on Trump-Xi meeting and payroll report — This will be a very busy week with a full slate of economic reports topped off by Friday’s March payroll report (expected +175,000 after Feb’s +235,00). There are five appearances by Fed officials this week. In addition, the markets will dissect Wednesday’s March 14-15 FOMC minutes for any fresh hints on Fed’s rate-hike regime or balance sheet policy.
If Senate Democrats filibuster this Friday’s vote on Neil Gorsuch’s Supreme Court nomination, then Senate Republicans are likely go nuclear and end the filibuster option for Supreme Court nominations. Ending the filibuster on Supreme Court nominations could lead to more extreme Supreme Court picks in the future by both parties since the Senate minority party would have no way to stop a nomination approval by the majority party.
The markets will assess U.S.-Chinese trade relations and security issues as President Trump and Chinese President Xi Jinping meet this Thursday/Friday in Florida. President Trump last week tweeted that the talks will be “very difficult.”
Mr. Trump said in a FT interview released over the weekend that the U.S. will take unilateral action on North Korea if China does not use its influence to curb the rogue nation. China has some leverage against the U.S. that it could use in this week’s talks since the only good option for stopping North Korea is for China to use its influence more aggressively against the rogue nation. South Korean intelligence last week warned that North Korea this week could conduct its sixth nuclear bomb test to disrupt the Trump-Xi summit.
In Washington, the markets are assessing whether there will be a U.S. government shutdown after April 28 when the current continuing resolution (CR) expires. Senate Democrats have said they will filibuster new spending authority if the bill includes what they consider to be poison-pill riders such as defunding Planned Parenthood or funding President Trump’s wall. Congress will be in session only through the end of this week and will then leave town for a 2-1/2 week Easter break. After the break, Congress will only have four legislative sessions (April 25-28) to get a new spending bill passed before the current CR expires on April 28.
U.S. stock market continues to show resilience — The U.S. stock market last week closed moderately higher by +0.80%, regaining some of the ground lost in the previous week when the House Obamacare repeal-and-replace bill fell apart. The stock market is still seeing underlying support from expectations for strong SPX 2017 earnings growth of +11% and from continued expectations for a corporate tax reform package later this year. White House advisors met with President Trump last Thursday to go over the options for a White House-inspired tax reform package. The stock market may trade tentatively ahead of the Trump-Xi summit on Thursday/Friday.
The 10-year T-note yield last week moved mostly sideways and closed the week -2.5 bp at 2.387%. The T-note yield has been subdued since dropping fairly sharply after the March 14-15 FOMC meeting, which reaffirmed the Fed’s guidance of raising interest rates three times in 2017. That relieved some fears in the market that the Fed might move to four rate hikes. The T-note yield has also been subdued due to the recent weak U.S. personal spending data, which has led to U.S. Q1 GDP tracking estimates as low as +0.9% by the Atlanta Fed’s GDPNow.
The 10-year T-note yield has also been subdued due to the slight decline in inflation expectations. The 10-year breakeven inflation expectations rate traded sideways last week and closed at 1.98%, down by -11 bp from the 2-1/2 year high of 2.09% seen in January when expectations for the Republican agenda were at a fever pitch.
U.S. ISM manufacturing index expected to back off from 2-1/2 year high — The market is expecting U.S. manufacturing confidence to cool off a bit after the sharp run-up seen following the election, coming more into line with the modest hard manufacturing data seen thus far. The market consensus is that today’s March ISM manufacturing index will show a -0.5 point decline to 57.2, giving back part of February’s sharp +1.7 point increase to 57.7. The ISM index has risen by a total of +5.7 points since the election to February’s 2-1/2 year high of 57.7.
The ISM manufacturing new orders sub-index has been even stronger, suggesting that the orders pipeline is filling up. Since the election, the ISM new orders sub-index has soared by +11.0 points to post a new 7-1/2 year high of 65.1 in February.
U.S. vehicle sales expected to remain relatively strong — U.S. vehicle sales in March are expected to cool off a bit but continue to run at relatively strong levels. The market consensus is for today’s Mar total vehicle sales report to ease to 17.30 million units from 17.47 million units in February and the 11-year high of 18.29 million units posted in December. However, today’s expected report of 17.30 million units would still be close to the 12-month trend average of 17.45 million units.
Today’s vehicle sales report will be closely watched for an early view of whether U.S. consumers stepped up their spending in March. The personal spending data that has been released thus far for Q1 has been weak and has undercut Q2 GDP tracking estimates. Today’s vehicle sales report is likely to show a continued divergence between weak auto sales (Feb -12.7% y/y) versus strong truck sales (Feb +8.0% y/y).
