- Weekly global market focus
- Trade tensions will continue to rattle the markets
- Record Treasury supply this week as China raises possibility of cutting back purchases
- U.S. stock market panics on Trump China tariffs and trade-war concerns
Weekly global market focus — The U.S. markets this week will focus on (1) trade developments as the White House continues to define how it will apply the recently-announcement tariffs and as U.S. trade partners may announce retaliatory actions, (2) any further White House cabinet moves after the New York Times reported over the weekend that Defense Secretary Mattis said that he is not sure if he can work with incoming National Security Advisor John Bolton and as other Cabinet members may be on the chopping block this week, (3) a busy week for Fed speaking engagements with the markets expecting the next rate hike by June, (4) the Treasury’s record sale of T-bills and T-notes this week, (5) another light earnings week with only 8 of the S&P 500 companies scheduled to report, and (6) Thursday’s Feb PCE deflator data where the headline index is expected to be unchanged at +1.7% y/y but the core index is expected to increase slightly to +1.6% from Jan’s +1.5%. Crude oil prices rallied to a 1-3/4 month high last Friday on concern that incoming National Security Advisor John Bolton will encourage President Trump to withdraw from the Iran nuclear agreement and reinstate sanctions.
The European markets this week will focus on (1) any fresh tariff news, (2) ongoing Brexit negotiations, (3) political developments in Italy after the populist parties Five Star and the League took the lead in negotiations last week to appoint leaders to parliament, and (4) inflation data late this week. The Euro Stoxx 50 index last week closed sharply lower by -4.05%, but there was at least some good news in that Europe was exempted for the time being from President Trump’s steel and aluminum tariffs. The exemption means that the EU can put aside for the time being its retaliatory tariff package on $35 billion of U.S. products.
The Asian markets this week will focus mainly on trade developments as President Trump’s tariffs have so far fallen mainly upon China. China’s Shanghai Composite Index last week fell sharply by -3.6% to a new 1-1/2 month low despite reports that China’s regulators had state investment funds intervene to support stocks on Friday. The Nikkei index last week plunged by -4.9% to a 5-3/4 month low as Japan so far has not received an exemption from President Trump’s steel and aluminum tariffs.
Trade tensions will continue to rattle the markets — The markets this week will continue to be on edge after President Trump last week announced tariffs on $50 billion worth of Chinese products, adding to his previous announcement of tariffs on steel and aluminum. There was at least some good news last week after the Trump administration said that a variety of countries have received temporary exemptions from the steel and aluminum tariffs including the EU, Argentina, Australia, Brazil, Canada and Mexico. In addition, there was weekend news that South Korea will also be exempted from the steel/aluminum tariffs as part of a revised overall U.S.-South Korean trade agreement. South Korea also agreed to cut its steel exports to the U.S.
However, the markets are waiting to see how China will react to President Trump’s announcement last week of tariffs on $50 billion of Chinese goods as retaliation for intellectual property violations. China late last week announced tariffs on $3 billion worth of U.S. goods, including pork, steel tubes, recycled aluminum, fruit, and wine. However, those tariffs were in retaliation for President Trump’s steel-aluminum tariffs.
China has yet to announce how they will retaliate for the new U.S. tariffs of $50 billion of Chinese products. There is apparently some time for negotiations since the proposed list of affected products is not due for 15 days and then there will be a 30-day comment period. U.S. Trade Representative Lighthizer then has additional time to review the public comments and make final decisions. Treasury Secretary Mnuchin on Sunday said that the Trump administration is having “productive conversations” with China and that he is “cautiously hopeful we reach an agreement.”
Record Treasury supply this week as China raises possibility of cutting back purchases — The U.S. Treasury this week will auction a record weekly supply of about $294 billion of bills and notes. The $30 billion size of today’s 2-year T-note auction is up from $28 billion in the February auction and the $26 billion size seen in the previous three years.
This week’s heavy Treasury supply takes place just as the Fed is stepping away from buying Treasury securities for its balance sheet. In addition, China’s ambassador to the U.S. last Friday said “We are looking at all options” when asked in a Bloomberg TV interview about whether China would cut back on purchases of U.S. Treasuries as retaliation for Trump tariffs. China owns about $1.2 trillion of U.S. Treasury securities, accounting for about 19% of all foreign holdings of U.S. government securities.
U.S. stock market panics on Trump China tariffs and trade-war concerns — The S&P 500 index last week plunged by -6.0% to post a new 1-1/2 month low. The stock market reacted to President Trump’s announcement of tariffs on $50 billion of Chinese goods and his comment that this is “just the beginning.” The markets are particularly nervous since China has not yet announced how it will retaliate for that U.S. tariff package. The markets were also rattled last week after Mr. Trump suddenly fired National Security Advisor McMaster and appointed noted hawk John Bolton as his new National Security Advisor, which increased the risks for an eventual U.S. military conflict with North Korea or Iran.
The stock market this week will continue to focus mainly on trade news and also on comments by a variety of Fed officials. Investors are also looking ahead to the beginning of Q1 earnings season in two weeks.
