The second quarter may get off to a rocky start due to Chinese tariffs on 128 American products—mostly in the agriculture sector—pork, almonds and apples among them—in response to President Trump’s steel tariffs, Prudential’s Chief Market Strategist Quincy Krosby said Monday in her weekly “Connecting the Dots” outlook.
Market response has so far been muted, but investors should keep an eye on further developments, Krosby said. While this is a relatively small amount of trade that the Chinese are targeting, it does affect an important constituency for the president, farmers in the United States. “There are expectations that the president could start targeting the Chinese tech area,” she said. “That would of course escalate the back and forth and certainly invite further retaliation from the Chinese side.”
Employment data will be the primary economic focus this week as the private sector ADP report is released on Wednesday, followed by Friday’s government payroll report. While wages are expected to move higher, consensus estimates suggest the move will not shock markets by galloping beyond a modest increase. Up to 190,000 new jobs are expected to be reported, compared to 313,000 new jobs last month, and unemployment is expected to tick down to 4 percent.
“These numbers are important as they will help the market figure out the direction of inflation,” Krosby said. The market is wary of “bad inflation,” where prices move higher but the economy and wages stagnate. Investors and analysts will listen closely to Federal Reserve Chairman Jerome Powell’s comments as he speaks on Friday afternoon.
The anticipated direct public offering (DPO) for Spotify is due on Tuesday amid concerns surrounding the technology sector. “We’ll see how this goes,” Krosby said. “If the market hits turbulence, are investors likely to take on risk, or will the DPO be postponed?"
Looking ahead, the Q1 earnings season begins officially on April 13, with big banks reporting, though a few notable names will report this week.
“Overall this is a market that wants to start anew. With the earnings season coming up, expectations are that earnings are going to be strong, that top-line revenue growth is going to be solid,” Krosby said. “This is an important week, however, as we’ll see how the market reacts to the tariffs.”
Earnings to watch:
This week’s important data releases:
Monday: Markit Manufacturing PMI; ISM Manufacturing Index; Construction Spending
Tuesday: Motor Vehicle Sales
Wednesday: ADP Employment Report (private payrolls); Markit Services PMI; ISM Non-Manufacturing Index; Factory Orders
Friday: Employment Situation report (Non-farm payrolls)
Read Quincy Krosby’s full Q2 Market Commentary: Regime Change.
The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This is solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.