What I’m Watching This Week – 9 April 2018

The Markets (as of market close April 6, 2018)

In likely reaction to the potential trade war with China, stocks fell last week, stripping away the previous week’s gains. Last week, China responded to the Trump administration’s proposal to increase tariffs on Chinese goods by announcing that it would impose 25% tariffs on several American imports, including soybeans and big-ticket items like automobiles and aircraft. In total, over 100 U.S. exports to China were included in the increased tariffs, affecting upwards of $50 billion of Chinese imports of U.S. products. Later last week, President Trump maintained that he is considering an additional $100 billion in tariffs on Chinese goods. It is worth noting that the tariffs from the global giants haven’t taken effect yet.

Each of the benchmark indexes listed here suffered losses last week and, except for the Nasdaq, are in the red year-to-date. A trade war between the world’s two largest economies could raise prices, boosting inflation — another potential ramification concerning investors.

The price of crude oil (WTI) dropped again last week, closing at $61.95 per barrel early Friday evening, down from the prior week’s closing price of $64.91 per barrel. The price of gold (COMEX) rose to $1,337.30 by early Friday evening, climbing ahead of the prior week’s price of $1,329.60. The national average retail regular gasoline price increased to $2.700 per gallon on April 2, 2018, $0.052 higher than the prior week’s price and $0.340 more than a year ago.

Market/Index 2017 Close Prior Week As of 4/6 Weekly Change YTD Change
DJIA 24719.22 24103.11 23932.76 -0.71% -3.18%
Nasdaq 6903.39 7063.44 6915.11 -2.10% 0.17%
S&P 500 2673.61 2640.87 2604.47 -1.38% -2.59%
Russell 2000 1535.51 1529.43 1513.30 -1.05% -1.45%
Global Dow 3085.41 3026.70 3002.47 -0.80% -2.69%
Fed. Funds target rate 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 2.73% 2.77% 4 bps 36 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

  • The labor sector continued adding new jobs and average hourly earnings crept higher in March, according to the latest report from the Bureau of Labor Statistics. There were 103,000 new jobs added last month, with manufacturing, as well as healthcare and social assistance leading the way in new hires. The unemployment rate remained at 4.1%. The labor force participation rate, at 62.9%, changed little in March, and the employment-population ratio held at 60.4%. The average workweek was unchanged at 34.5 hours in March, but average wages rose by $0.08 to $26.82. Over the year, average hourly earnings have increased by $0.71, or 2.7%.
  • The IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 55.6 in March, up from 55.3 in February. The latest PMI™ reading indicated the strongest improvement in manufacturing business conditions since March 2015. According to the report, manufacturing output and new orders rose markedly, and job creation was strong. Inflationary pressures strengthened as costs for materials used in manufacturing increased, as did prices for manufactured products.
  • According to the Institute for Supply Management® Manufacturing ISM® Report On Business®, manufacturing slowed in March. The March PMI® dropped 1.5 percentage points from February’s reading. New orders fell 2.3 percentage points, while production and employment also lost ground for the month. Nevertheless, February’s manufacturing growth was the highest in 14 years, so a slight drop-off was to be expected. Overall, the ISM® survey is still very positive in the manufacturing sector.
  • Growth slowed in the non-manufacturing (services) sector, according to the Institute for Supply Management®. Business activity and new orders slowed, while employment and prices increased.
  • The goods and services trade deficit continue to expand through February. According to the latest report from the Bureau of Economic Analysis, the goods and services deficit was $57.6 billion in February, up $0.9 billion, or 1.6%, from January. Both exports and imports increased by approximately 1.7% for the month. Year-to-date, the goods, and services deficit increased $21.1 billion, or 22.7%, from the same period in 2017. Exports increased $22.4 billion, or 5.9%. Imports increased $43.6 billion, or 9.1%.
  • In the week ended March 31, there were 242,000 initial claims for unemployment insurance, an increase of 24,000 from the previous week’s level, which was revised up by 3,000. The advance insured unemployment rate remained at 1.3% for the week ended March 24. The advance number of those receiving unemployment insurance benefits during the week ended March 24 was 1,808,000, a decrease of 64,000 from the prior week’s level, which was revised up by 1,000. This is the lowest level for insured unemployment since December 29, 1973, when it was 1,805,000.

Eye on the Week Ahead

This week, inflationary measures for March are found in both the Consumer Price Index and the Producer Price Index. Also, import and export prices for March are available. This report may begin to reflect the impact, if any, of the tariffs and trade policies initiated by the present administration.

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