Treasury prices are higher this morning on global trade concerns (risk off), and S&P 500 futures are down 30 points at the moment. The Trump administration is expected to announce $50 billion of new tariffs against China today, largely targeted toward products in which the U.S. believes China stole technology/intellectual property. While the markets are reacting negatively to this morning’s headlines, those that are closely following the situation note that the trade war rhetoric has actually eased in recent days from the original threats. That said, things can get out of hand quickly via retaliatory measures, which is why financial markets remain anxious.

As expected, the Fed announced another 25 basis point hike yesterday, but there is debate on whether the FOMC message, in it’s entirety, was dovish or hawkish. Those that feel it was dovish point to the simple fact that the median FOMC participant forecast for 2018 rate hikes was left unchanged from December at three.  However, looking more closely, one additional participant forecast would have increased the median to four hikes in 2018, and the forecast for 2019, 2020, and long-run were increased modestly (effectively by one 25 bps hike). The Fed’s forecasts for both GDP growth and the unemployment rate were improved for 2018 and 2019, but their inflation forecast for the same timeframe was essentially unchanged. This suggests that the GDP improvement is tied to fiscal stimulus, but they don’t think it will spillover into inflation. At the same time, the fact that a lower projected unemployment rate doesn’t boost their inflation forecast implies that the Fed is once again lowering its NAIRU (non-accelerated inflation rate of unemployment). In the end, yesterday’s message from the Fed is little changed. They believe the economy is moving in the right direction (higher growth/inflation), and the current pace of inflation growth is manageable via a continuation of gradual policy normalization. The rates markets was already priced for three hikes in 2018.

Jason Haley
Managing Director, Investment Management Group

DateEventSurv(M)ActualPriorRevised
03/21MBA Mortgage Applications-1.10%0.90%
03/21Current Account Balance-$125.0b-$128.2b-$100.6b-$101.5b
03/21Current Acct media lockup canceled- data on web at 8:30
03/21Existing Home Sales5.40m5.54m5.38m
03/21Existing Home Sales MoM0.40%3.00%-3.20%
03/21FOMC Rate Decision (Upper Bound)1.75%1.75%1.50%
03/21FOMC Rate Decision (Lower Bound)1.50%1.50%1.25%
03/22Gov’t Delayed Opening, Jobless Claims Lockup Canceled
03/22Initial Jobless Claims225k229k226k
03/22Continuing Claims1870k1828k1879k1885k
03/22FHFA House Price Index MoM0.40%0.80%0.30%0.40%
03/22Bloomberg Economic Expectations5654.5
03/22Bloomberg Consumer Comfort56.856.2
03/22Markit US Manufacturing PMI55.555.755.3
03/22Markit US Services PMI5654.155.9
03/22Markit US Composite PMI54.355.8
03/22Leading Index0.50%1.00%
03/22Kansas City Fed Manf. Activity1717
03/23Durable Goods Orders1.60%-3.60%
03/23Durables Ex Transportation0.50%-0.30%
03/23Cap Goods Orders Nondef Ex Air0.90%-0.30%
03/23Cap Goods Ship Nondef Ex Air0.40%-0.10%
03/23New Home Sales622k593k
03/23New Home Sales MoM4.80%-7.80%
03/23Revisions: Industrial Production, Capacity Utilization