Monday 26th March 2018
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As darkening trade war clouds rain on Wall Street’s parade, investors will eye a slew of Federal Reserve speakers this week for clues on the pace of interest rate hikes as well as the latest reports on US consumer confidence.
Among Fed officials scheduled to speak this week, shortened by the Good Friday holiday, are Randal Quarles, Willam Dudley and Loretta Mester today, Raphael Bostic on Tuesday and again on Wednesday, as well as Patrick Harker on Thursday.
Chaired by Jerome Powell, the Federal Open Market Committee last Wednesday lifted its key rate for the first time this year and the sixth time this cycle, while also offering an outlook that was more upbeat about the economy and increasingly hawkish.
While the central bank’s policymakers still see a total of three rate hikes this year, the number of officials predicting four increases doubled.
"Among the voters are hawks Quarles and Mester," TD Securities said in a note on Friday. "Bostic was dovish but has moved toward the centre. He speaks twice and may give the most clues to how the consensus is shifting.”
“We think a fourth dot is easier than a fourth hike this year,” according to TD Securities.
The latest US economic data slated for release include the Chicago Fed national activity index and Dallas Fed manufacturing survey, due today; S&P Corelogic Case-Shiller home price index, consumer confidence, and Richmond Fed manufacturing index, due Tuesday; gross domestic product, international trade in goods, corporate profits, retail and wholesale inventories, and pending home sales index, due Wednesday; weekly jobless claims, personal income and outlays, Chicago PMI, and consumer sentiment, due Thursday.
Last week Wall Street dropped amid increasing concerns about a global trade war prompted by the US administration’s accelerating protectionist moves, in particular towards China.
“There is a tug of war between Fed tightening, fiscal stimulus, strong earnings but slowing sales and now tariffs and potential trade wars,” Jason Browne, chief investment strategist at FundX Investment Group, told Bloomberg.
On Friday, the Dow Jones Industrial Average dropped 1.8 percent, the Standard & Poor’s 500 Index shed 2.1 percent, and the Nasdaq Composite Index slid 2.4 percent.
“There is concern what the trade war could look like. Investors want to manage their risk,” Peter Kenny, senior market strategist at Global Markets Advisory Group, in New York, told Reuters. “If it escalates rapidly, it could be a major headwind for the market.”
For the week, the Dow plunged 5.7 percent, the S&P 500 tumbled 6 percent and the Nasdaq sank 6.5 percent.
“The economic impact of the tariffs which have been announced by the Trump administration will be small, even if they are implemented in full, and we suspect that any retaliation will be moderate," Capital Economics chief global economist Andrew Kenningham said in a note on Friday. "But fears that the rest of Trump’s presidency will be punctuated by protectionist announcements and actions may continue to weigh on investor sentiment.”
"We think the biggest fallout will continue to be for equity markets,” Kenningham said. “Markets which are likely to be among the worst affected include those which are reliant on supply chains linked to China, notably Taiwan as well as companies which could be hit by Chinese retaliation.”
In Europe, the Stoxx 600 Index finished Friday with 0.4 percent decline from the previous day’s close.
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