Trade concerns and political developments dominated headlines last week. On Wednesday, reports surfaced that the White House plans to announce new tariffs aimed at up to $60 billion in annual Chinese imports (e.g., electronics, telecommunications equipment, furniture, and toys) in retaliation for intellectual property theft. The news followed the administration’s order to block Singapore-based Broadcom’s efforts to acquire Qualcomm, citing national security concerns following a review by the Committee on Foreign Investment in the U.S. The moves signal a stronger line on trade and investment as part of a broader effort aimed at evening the terms of global commerce. Also last week, President Trump fired Secretary of State Rex Tillerson and replaced him with CIA Director Mike Pompeo. The timing is noteworthy given the May 12th deadline to re-impose sanctions on Iran and the planned meeting with North Korean leader Kim Jong Un “by the end of May.” Following Gary Cohn’s resignation last week, President Trump tapped Larry Kudlow as director of the National Economic Council. Mr. Kudlow’s first remarks as the President’s top economic advisor included calls for a “phase two” of tax reform which would make individual tax cuts permanent and lower the capital gains tax rate. And, on Thursday, the Senate voted to roll back elements of the Dodd-Frank Act; the legislation would ease restrictions on smaller financial institutions, including regional and community banks.
Economic data continue to highlight a healthy global economy. The Small Business Optimism Index rose to 107.6 in February from 106.9 in January. Notably, for the first time since 2006, taxes fell to the bottom of the list as the number one problem facing businesses. Similarly, consumer sentiment is robust; the Index rose to 102.0 in March, above analysts’ estimates of 99.2, to reach its highest level since 2004. Industrial production grew 1.1%, ahead of expectations for a 0.3% gain. And, regional manufacturing indices point to a positive outlook; both the Philly Fed and the Empire State (New York) Manufacturing Index reports noted strength in new orders and higher prices. Retail sales, though, declined 0.1% in February, with 7 of 13 categories posting lower sales for the month; and, housing starts fell 7% due to a 28% contraction in multifamily groundbreakings. Still, the Organization for Economic Co-operation and Development (OECD) raised its global growth forecast for 2018 and 2019 to 3.9%, up from previous estimates of 3.7% and 3.6%, respectively. The OECD also upgraded its estimate for U.S. economic growth to 2.9% in 2018 and 2.8% in 2019, up from previous estimates of 2.5% and 2.1%, respectively. The contrast of strong economic data and escalating trade concerns kept markets in a holding pattern this week. This week, the Federal Reserve is widely expected to raise benchmark rates by 25 basis points. Investors, however, will likely be focused on updated projections for rate hikes through the remainder of the year.
*Source: Pacific Global Investment Management Company
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 Headlines
1. Despite some investors fear that inflation may increase at a faster pace than expected, Core CPI for February increased 1.8%, leaving the index up 2.2% over the twelve month period ending on 2/28/18. Meanwhile, the Producer Price Index advanced 0.2% in February after a 0.4% increase in January. For the 12 months ended February 28th, 2018 the Producer Price Index increased 2.8% year over year.
2. Retails Sales Ex-Autos increased 0.2% in February, however, with Autos included total retail sales dropped 0.1% for the month.
3. The U.S. Census Bureau reported Business Inventories increased 0.6% in January.
4. The NY Fed Manufacturing Index increased by 22.5%, climbing 9 points from its previous level. The readings "pointed to strong growth in orders and shipments," and "Labor market indicators showed an increase in employment and hours worked." The Philly Fed Manufacturing Business Outlook Survey dropped from 25.8 to 22.3, but still indicates continued growth in the region's manufacturing sector.
5. Building Permits for February were at a seasonally adjusted rate of 1,298,000, which is 5.7% below the revised January rate of 1,277,000, but is 6.5% above the February 2017 rate.
This Week's Headlines
This week, we will see updated numbers come out for existing home sales and Durable Goods, the Federal Reserve will make an announcement on the Fed Funds Target Rate, and updated numbers on Jobless Claims are due.
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