April 6, 2018, by Lorcan Roche Kelly
The war of words between the U.S. and China escalated again after President Donald Trump ordered his administration to consider tariffs on an additional $100 billion in Chinese goods, with Beijing saying it would counter the moves “to the end, and at any cost.” The tit-for-tat nature of the public pronouncements on both sides is putting pressure on markets, with Wall Street futures dropping in early trading. One problem China is facing with taking the tariff route is that it will soon run out of U.S. imports to target, which may push the country towards seeking other avenues for reprisal. Some market participants are starting to express concern that it may start running down its holdings of U.S. Treasuries.
At 8:30 a.m. Eastern Time, the U.S. jobs report for March is published, with expectations for employers to have added 185,000 positions in the month, a still-robust performance following February’s blow-out 313,000 gain. Average hourly earnings are predicted to pick up to 0.3 percent in the month, with the unemployment rate falling to 4 percent. Treasury bears, looking for the still-elusive 3 percent on the 10 year, are hoping a positive number will help provide the impetus to hit their target.
It’s all about trade tensions in markets again this morning, with the yo-yo week continuing as global equities follow yesterday’s gain with losses today. Overnight, the MSCI Asia Pacific Index dropped less then 0.1 percent as Hong Kong markets reopened after a holiday, while Japan’s Topix index closed 0.3 percent lower. In Europe, the Stoxx 600 Index was 0.5 percent lower at 5:45 a.m. Eastern Time with stocks slipping after notching their biggest one-day gain since June 2016 yesterday. S&P 500 futures were down 0.7 percent, the 10-year yield was at 2.819 percent and gold was broadly unchanged.
Federal Reserve Chair Jerome Powell is due to give a speech on the economic outlook in Chicago at 1:30 p.m. today, with his words gaining more significance amid rising trade tensions. Also on the Fed speaker calendar today is current San Francisco, and soon to be New York Fed President John Williams, who will deliver his views on the economic outlook at 4:00 p.m. in Santa Rosa, California.
Crude is heading for its worst week in a month as Trump’s latest trade threat sours investor sentiment on the global economy. A barrel of West Texas Intermediate for May delivery was trading at $63.27. At 1:00 p.m., the Baker Hughes’ latest U.S. rig count is due with investors looking for an improvement following last week’s decline by the most since November. Copper and soy beans are also down in trading today as the market unwinds some of the optimism from yesterday’s it’s-only-a-negotiating-position rally.