Trade, Jobs: Trump Cards?

Trade, Jobs: Trump Cards?

The US and China upped the ante on tariffs and trade; The jobs report for March disappointed, but not by much; Europe’s growth came in steady but not slow.

“…to the end, and at any cost."
China’s Commerce Ministry on its official website, Friday, April 6, in response to President Trump’s statements about increasing U.S. tariffs aimed at China

U.S. trade: New style, new objectives? The week ended with China and the U.S offering new counter-reactions to each others’ counter-offers, with escalating rhetoric but a lack of specificity. It’s worth noting that many of the proposed tariffs proposed by the U.S. require periods of public commentary before they can come into force, giving companies and industries an opportunity to have their voices heard.

Financial market reaction has been telling.  While the near nearest-term S&P futures contract dropped -1.66% Friday morning in Asia, the follow-through intra-day trading later in the day in New York and Chicago barely reacted after a weak open, appearing to pay more attention to the March jobs report than to the latest salvos on trade. As of 11:00 AM on Friday, the S&P 500 was off -0.96%.  The Dow Jones Industrial Average, however, was off about -1.6%, falling 389 points to 24116.28.  The disparity could be explained by the larger impact that any proposed tariff increase from either source could have on the largest U.S. companies, heavily represented in the DJIA.

U.S. fixed-income markets reacted slightly differently on Friday, with U.S. Treasury yields falling in the -5 basis point range on the longer end, That helped flatten the curve slightly, as longer-maturity yields fell more than on the short end, where additional Treasury issuance both recent and future, could be supporting yields. European sovereign yields also fell, but not radically; the yield on the 5-year Bund fell 2.4 basis points to -.1074%.

For more insight from Legg Mason’s investment managers, read: Trade war: What's at stake?

U.S. jobs: Goldilocks lite The March employment report mostly disappointed with respect to headline numbers: 102k for private payrolls vs. an expected 188k, unemployment rate up to 4.1% vs. 4.0% expected; little improvement in the underemployment rate at 8%; no improvement in the labor participation rate.

But one number was solid, if unexciting: average hourly earnings rose 2.7% year-over-year, somewhat higher than the roughly 1.7-1.8% inflation rate recently observed. And given the February report’s well-known volatility, the two-month net downward revision of 50K in overall nonfarm payrolls was less disappointing than the headline miss would indicate.

All this adds up to a perceived note of caution to a newly reshuffled and restaffed Federal Reserve, some of whose members have been looking for reasons to pick up the pace of interest rate hikes this year.

Eurozone: Peak growth? For the second quarter running, Eurozone GDP growth has remained unchanged, the unemployment rate for the region is 8.5% and retail sales growth year-on-year is 1.8%.

But GDP growth, though stable, is still at an annualized 2.7% -- suggesting that things are not so bleak.  And though core consumer prices rose an estimated 1.4% for March, that’s an improvement from February.  Early Eurozone manufacturing PMI remains solidly in growth territory, at 56.6, for the second month in a row, and even Retail PMI is now above breakeven, at 50.1. All of which suggests that growth is far from over, even if price growth is slow and unemployment is too high.



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