Global trade: A Show-Me Market

Global trade: A Show-Me Market

Financial markets got used to the news flow, it seems; U.S. consumer inflation hit the mark; crude oil is having a good year; China and the U.S. begin coming to terms on trade.

"We will make great progress together!"
President Donald Trump, tweeting in response to China's President Xi Jinping's speech on global trade

The Show – Don’t Tell – market The news flow over the past two weeks was relentless, reaching  well beyond the gossip pages into matters of consequence: trade policy, military stance in the Middle East, European monetary stance, the newly-changed verbal style of the Fed, and potential come-uppances for two of the largest companies in the S&P 500, Amazon and Facebook.

But the VIX index fell during all this, from a high of 25.7 during the afternoon of April 2 to 17.4 mid-afternoon on Friday, April 13th; for the same two-week period, the S&P 500 itself was up just under 1%, though not in a straight line.

Which raises the question: has the U.S. equity market become, at least for the past two weeks, increasingly immunized to talk, rather than action?
 

Global oil: Fast and furious Crude oil is having a good week, if you’re a seller; Brent and West Texas Intermediate Crudes rose about 7.7% each, and now stand at $72.44 and $67.22 respectively.[1] That’s the highest in over three years, when crude prices fell over 60% during the latter half of 2014, reaching as low as $44 before recovering – if briefly. Primary reasons: OPEC falling below its own production ceilings; sanctions on Russia; and the prospect of relaxed fuel efficiency standards in the U.S.

Venezuela, on the other hand, is in no position to benefit directly. According to one report quoted by Bloomberg, the country’s oil production capability has now fallen back to the level it achieved 69 years ago. Bloomberg News also reports some oil industry workers dependent on government-supplied food boxes, due to the fallen value of their wages.
 

U.S. inflation: Breaking on through At last, year-over-year consumer price gains rose above 2%, with the headline figure reaching 2.4% for the 12 months ended March 30, and 2.1% ex food and energy. Some credit “base effects”, meaning that last year’s figures were so low that a small rise generated a large percentage gain.  Others credited an end to heavy discounting in mobile phone plans.  Whatever the reason, the numbers weigh slightly in favor of those members of the Federal Open Market Committee who would prefer to start raising rates sooner rather than later. The next FOMC meeting will be on May 1-2; the June 12-13 meeting  will close out with a a revised economic forecast and a press conference.
 

China: Free Trade Advocates Tuesday April 10 brought a speech by President Xi Jinping, assuring listeners of a “new phase of opening up”, including pledges of opening the country’s banking and auto manufacturing sectors to increased foreign competition.  In reaction, U.S. President Donald Trump tweeted that he was very thankful; for his “kind words on tariffs and automobile barriers”, and that “We will make great progress together!”.


All data source: Bloomberg

 

[1] Source: Bloomberg, April 13 2018, 2:45 PM EDT.

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