Michael Reinking:
Hello, I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines. Every week we are here to keep you up to date on the key trends and events driving global markets. We are recording on Thursday afternoon, so let's dive into this week's market storylines.
Now, last week for the second consecutive week, there were sharp declines coming out of the weekend with tariff announcements. However, markets recouped those losses heading into Friday's jobs report. Now, as we highlighted last week, those numbers coupled with the revisions were expected to be sloppy and were just that. Headline non-farm payrolls were up 140,000, modestly below estimates. The unemployment rate fell to 4%. While revisions were not as negative as expected. However, some of the leading indicators, like the length of the work week and temp hiring both fell. Now, the increase in wages did cause some concern, though when coupled with the decline in the work week, that left absolute take-home levels around unchanged.
Now, after the open, the University of Michigan Sentiment Survey was released, which fell it was seven month low. But the focus was on the second large monthly increase in the one-year inflation expectations, which jumped to 4.3%. Now, this seemed to be related to the tariff headlines, but there were also well-known political biases in the report. Now, the combination of data caused Treasury yields to reverse much of the week's move lower while equities came under some pressure ending the week modestly lower.
Now, multiple streaks came to an end coming out of the weekend. The Philadelphia Eagles broke the Chiefs bid for a three-peat, and after back-to-back weeks of significant declines coming out of the weekend, US futures were modestly higher despite another round of tariff announcements. Now that included 25% tariffs on imported steel and aluminum, and President Trump said reciprocal tariffs would be announced in the coming days. That day came today, just before we recorded.
Now, before I fully shift gears to the whirlwind of Washington headlines, which are driving some volatility, let's talk about the other sorts of this week's volatility, inflation data. Now, on Monday the New York Fed Survey of Consumer Expectations showed that the one-year inflation expectations held steady at 3%, painting a different picture from last Friday's survey, easing some of those concerns.
Now on Wednesday, CPI unequivocally came in hot but there were multiple factors potentially impacting this, including seasonal adjustments and the potential impact of storms and wildfires on the data. For instance, used car and hotel prices were both sharply higher, and if you look regionally, the West was the only region that saw an increase on a month-over-month basis.
Now, yields did move higher on the data and equity sold off, with the S&P 500, falling about 1%, retesting 50-day moving average after the open. However much of that move reversed during the session held by comments from Fed Chair Powell downplaying the importance of a single-month's report and highlighting that the Fed's preferred gauge of inflation is PCE, saying he'd wait to make any judgment until seeing today's PPI report, which feeds into that reading.
Now, this morning's data also came in hot along with revisions to last month's report. Now, there was a muted response to the report, which was initially a bit of a head-scratcher with rates starting to pull back modestly, but things became a little more clear if you dove deeper into that data. Items that feed into PCE like healthcare and financial services saw big declines. In addition, there was a moderation in the personal consumption readings from the previous month.
Now, after this morning's data, most major investment banks expect core PCE to be up just under 0.3% month over month with an annual core PCE projected around 2.6%, down from 2.8% last month. Now, the downside move in Treasury yields has accelerated throughout the day reversing all of the post-CPI move higher.
So let's shift gears and talk about the other source of volatility, Washington. Now on Wednesday during the initial CPI sell-off, there were a couple of headlines that helped equity markets. GOP had started to put together a framework for the reconciliation process, but more impactful was President Trump saying he had a long and productive conversation with Vladimir Putin. As we highlighted last week, there were reports that the administration would start to lay out its peace plan at the Munich Security Conference this week, and this was a step in the right direction. It helped the broader tape rally off the lows and cause some volatility in assets that are impacted by the conflict with oil prices and LNG falling sharply, while defense stocks also came under pressure. Now on the flip side, it's helped to keep a bid under European indices, which have been outperforming the US this year.
Now, let's wrap off where we started with tariffs. This afternoon President Trump announced reciprocal tariffs, a major escalation in the trade wars. There are still a lot of details to be ironed out. The President highlighted that the rate of will be decided on a country-by-country basis and not just be reciprocal tariffs, but will also take into account value-added tax regimes and other non-tariff barriers.
Now President Trump said this, it could take a number of weeks or months to go into effect and Commerce Secretary Lutnick is targeting April 1st. The President highlighted, in response the EU has agreed to lower its tariffs on imported US autos to 2.5%, something that was floated in the press earlier this week. He also noted that the previously announced tariffs on steel and aluminum would be above and beyond these tariffs, as would upcoming announcements on pharma, chips and autos.
Now we're recording as the first round of has crossed the tape and markets have reacted positively under the assumption that this will be the opening overture for negotiations, with more olive branches like the one from the EU expected to come. However, as we discussed in last week's episode, outside of potential drags on the economy upon implementation and retaliation, this adds a layer of uncertainty to the environment, which could also slow growth.
Now, heading into the end of the day, the S&P 500 is currently testing the upper end of its recent range. The index continues to be very resilient, having shrugged off all of the headlines that keep getting thrown at it. The volatility associated with each episode has been short-lived and the index keeps running in place. Beneath the surface there are some more signs of caution. Large cap has been outperforming small and mid-cap as investors go up the quality scale and there is some outperformance in defensive sectors. One indicator I like to watch is the relative performance of consumer staples versus consumer discretionary, and the former has been outperforming recently.
Now, if we start to break above the all-time highs, we'll want to see that done with some authority and hold above that level, or that could just lead to a quick reversal. Now, the 50-day moving average around 6,000 has been a key short-term support level, so traders will be watching that closely on any pullbacks.
Now, as we close out the week, tomorrow's retail sales and industrial production reports will be the last of the real impactful economic data until next Friday when the S&P Global flash PMIs are released. Now, don't worry, there'll be plenty of corporate updates and undoubtedly headlines from Washington to keep us busy with the looming debt ceiling deadline inching ever closer.
Now, once again, thank you for spending some time with us today. Remember, you can watch market storylines on tv.nyc.com or our YouTube channel, or you can listen every Friday on the Inside the ICE House podcast feed. Thanks for joining me. I'm Michael Reinking. I'll talk to you again next week.
Speaker 2:
That's our conversation for this week. Remember to rate, review and subscribe wherever you listen and follow us on X at ICE House Podcast. From the New York Stock Exchange, we'll talk to you again next week, inside the ICE house.
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, expressed or implied, as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.