Monday 5th March 2018
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The latest US jobs data, a slew of Federal Reserve speakers and US President Donald Trump’s protectionist promises will be in focus this week amid concern about a potential global trade war and the impact on corporate profits.
Trump last Thursday said he plans to impose tariffs on steel and aluminum imports of 25 percent and 10 percent respectively, sending down equities. The proposal was met with criticism from a broad group of chief executives and key US allies.
While Wall Street recovered some losses on Friday—the Standard & Poor’s 500 Index rose 0.5 percent and the Nasdaq Composite Index rallied 1.1 percent—it posted a slide for the week.
In the last five trading days, the Dow Jones Industrial Average dropped 3.1 percent, the S&P 500 shed 2 percent and the Nasdaq declined 1.1 percent.
In Europe, the Stoxx 600 Index ended Friday with a 2.1 percent tumble from the previous day’s close.
“Everyone waits with bated breath to see if President Donald Trump follows through,” Capital Economics’ chief US economist Paul Ashworth said in a note on Friday. "If he does, the retaliatory action from Canada and the EU targeting US exports will be swift.”
Indeed, the European Union is considering applying 25 percent tariffs on about US$3.5 billion of imports from the US if Trump carries out his plan to apply global duties to steel and aluminum, EU sources say, according to Reuters.
Trump’s tariff plans also prompted concern some trading partners might retaliate by dumping US Treasuries, Reuters reported.
“The threats are real,” Kristina Hooper, chief global market strategist at Invesco in New York, told Reuters. “We need more foreign demand, not less.”
On Friday, US Treasuries retreated, lifting yields on the 10-year note five basis points higher to 2.86 percent.
Also in view this week are US jobs data including the ADP employment report on Wednesday, weekly jobless claims on Thursday and the government's non-farm payrolls report on Friday.
Other US economic reports slated for release include the PMI services index, due today; factory orders, due Tuesday; international trade, productivity and costs, as well as consumer credit, due Wednesday; and wholesale trade, due Friday.
"The data releases [this] week will only harden Trump’s protectionist views, with January’s trade figures expected to show a further widening in the deficit,” Ashworth noted. "February’s employment report might also convince Trump that he knows best, with our econometric model suggesting that non-farm payrolls increased by a sizeable 250,000.”
The Fed will also publish its Beige Book on Wednesday.
Investors will closely watch for any fresh clues on an accelerated trajectory for interest rate increases this year after Fed Chairman Jerome Powell last Tuesday raised expectations for four hikes—instead of the three flagged so far—only to downplay that scenario on Thursday.
Fed officials scheduled to speak this week include Randal Quaries today, William Dudley, Lael Brainard and Robert Kaplan on Tuesday, Raphael Bostic on Wednesday, and Charles Evans on Friday.
Policymakers are expected to lift US rates when they meet later this month.
“The market is looking ahead like, are four more rate hikes, and then hikes into next year, going to be an incremental negative that’s going to slow down the economy?” Jeff James, a portfolio manager at Driehaus Capital Management, told Bloomberg.
Investors will also eye a policy statement from the European Central Bank on Thursday.
First, the latest economic data will arrive in the form of reports on eurozone services PMI, eurozone Sentix investor confidence and eurozone retail sales, due today; eurozone retail PMI, due Tuesday; eurozone gross domestic product, due Wednesday; Germany's factory orders, due Thursday; and Germany's trade balance and industrial production, due Friday.
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