Economic Update 3-12-2018
- Economic news for the week included a slight decline in the still-strong non-manufacturing ISM index, and a deterioration in the trade deficit, while the employment numbers for February showed strong labor growth yet a tempering in wage growth pressures that have worried markets.
- Equity markets gained in the U.S. and Europe with positive economic data and hopes that tariff talk will be tempered somewhat. Bonds were mixed, with interest rates ticking slightly higher and the U.S. dollar little changed. Commodities gained slightly along with a slight rise in oil prices.
U.S. stocks continued their see-saw pattern, with prices ending positively for the week, with help from discussions of some possible paring back and/or exemptions for key countries affected by recent tariff talk, as well as a strong employment report for February on Friday—which also dialed back inflation fears. From a sector standpoint, industrials, financials and technology led the way, with +4% gains, while utilities lagged with gains under a percent.
Foreign stocks experienced a positive a week as well, with European and U.K. equities performing just under those of U.S. stocks, and Japanese stocks coming in behind. Sentiment again followed that in the U.S., with areas of more uncertainty focused on—to no surprise—potential areas affected by the President’s recent tariff talk. The ECB meeting last week resulted in no policy changes, but did include an increase of growth estimates and removal of the language indicating that QE would be expanded if necessary. Some concerns continue about the removal of the ECB’s ‘easing bias’ as the first step in stopping quantitative easing altogether as the European economy improves, toward eventual policy tightening—although the continent remains at an earlier point in the business cycle than the United States. The BOJ also left rates unchanged, but hinted that the policy could be tightened before their 2% inflation goal is reached. Other Asian regions gained upon hopes of a U.S.-North Korean meeting to defuse geopolitical tensions in the region, which has been a significant wildcard, aside from the well-discussed fears of trade restrictions.
U.S. bonds ticked down slightly on the week, as interest rates moved further upward as the employment report rendered a March Fed rate hike highly likely. Investment-grade credit and government performed similarly, while high yield and floating rate bucked the trend with slightly positive returns. Foreign bonds experienced a similar week, with flattish local returns pulled down a bit by a stronger dollar in developed markets. Emerging market bonds fared a bit better along with most risk assets.
Commodity indexes ticked up for the week, as energy and precious metals gains outweighed declines in industrial metals and agriculture. In the energy sector, West Texas crude oil bounced around a bit before rising just over a percent on the week to just over $62, with little news to move the needle dramatically. However, it seems short selling pressures could be returning to oil markets, with higher production upcoming, which would boost supplies and lower prices, all else equal.
|Period ending 3/9/2018||1 Week (%)||YTD (%)|
|BlmbgBarcl U.S. Aggregate||-0.12||-2.22|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.