Equity markets rebounded last week as trade tensions eased after a conciliatory speech by China’s President Xi Jinping and a POTUS tweet expressing interest in revisiting the TPP. While very much in the news, the Syrian conflict and further escalation of the Russian/POTUS investigation predictably had very little impact on markets. External drivers pushed energy (oil) and technology stocks higher last week while interest rates shifted higher across the curve.
- Q1 earnings season began last week. FactSet reported the S&P 500 consensus earnings growth expectation is 17.3% coming into earnings season. Over the past five years, 70% of companies beat expectations which has resulted in a 3% increase in estimated versus reported earnings.
- China’s President Xi Jinping, in true Chinese fashion, delivered a ‘yes, can do’ address which markets applauded and translated as trade capitulation. Real deals will take time to unfold.
- Tough U.S. sanctions last week against Russian 24 individuals and 12 companies in response to the Syrian chemical weapons assault sent the Ruble to its worst week since 1999.
- CME FedWatch tool, which calculates futures market probabilities of Fed rate hikes, is currently placing a 94.5% probability of a 0.25% rate hike in June. Probabilities placed on the total number of rate hikes in 2018 are 44% for three hikes and 21% for four hikes.
- Bloomberg reported that global debt of households, corporations, and governments jumped to a record high of $237 trillion last year and household debt as percentage of GDP moved to record highs in several developed nations (Canada, Norway, France, Sweden, Swiss). That said, the ratio of global debt/GDP fell for a fifth consecutive year thanks to improving global growth.
- Emerging markets have experienced rather disparate returns this month with Brazil and Russia down over 5% and 10% respectively while India, Mexico, and Hong Kong are positive in April.
- The March FOMC meeting minutes were released and detailed unanimous agreement that inflation is moving higher, the outlook is improved, and more tightening is needed.
- While U.S. data has been holding up relatively well, the Citi Economic Surprise Index for Europe has dropped to its lowest level in five years.
- Tensions in the Middle East and a talking point from Saudi Arabia about their desire for $80 oil (in front of the ‘19’20 Saudi Aramco IPO) sent WTI crude oil up 8.5% on the week, its highest level since 2014.
Economic Release Highlights
- Headline and core CPI registered 2.4% and 2.1% respectively, a relatively tame report that confirmed inflation is trending toward the Fed’s 2% PCE target.
- Headline and core PPI registered 3% and 2.7% respectively, slightly stronger than expected and exhibiting upward momentum suggesting more tailwinds for inflation data looking forward.
- This week marked 162 straight weeks of less than 300,000 jobless claims, surpassing the previous record of 161 weeks in 1970.
- Small business sentiment declined in March, however, it remains solidly positive and is well above the historical average reading of 96.6. Since the tax reform bill, businesses citing taxes as problematic fell to its lowest mark since 1982!