The president’s observation that trade wars are “good and easy to win” was softened somewhat this weekend by his advisors, who suggested that there could be exceptions to tariffs on steel and aluminum, Prudential’s Chief Market Strategist Quincy Krosby said Monday in her weekly “Connecting the Dots” outlook.
“We’re in unknown territory,” Krosby said. “But the suggestion that there would be exceptions to the tariffs has alleviated some of the major worries that this would spark some kind of trade war. We’ll see if President Trump has more to say about it. Even then, nothing is set in stone. The market will have to sort through all of this.”
Employment data will be a focus this week as inflation expectations continue to rise. Wage growth will be the key data component that the market will zero in on when the Employment Report is released on Friday morning, the last one before the next Fed meeting.
“In the last Employment Report, wages had jumped much higher than expected, and that triggered the market sell-off,” Krosby said. “The market is expecting the unemployment rate to tick down to 4.0% from 4.1%. Wages are expected to climb but not as high as the last reading.”
A parade of Federal Reserve speakers this week is sure to make headlines as they comment on the economy, inflation, monetary policy, and the possibilities of a trade war.
“Last week we heard from Jerome Powell and he made it very clear the Fed would march ahead with rate hikes if inflation continues to gain strength,” Krosby said. “The market wants to know if there will be a fourth rate hike in 2018.”
The European Central Bank meets this week and expectations are that Mario Draghi will continue to highlight the strength of the eurozone economy, but remain neutral with regard to monetary policy, particularly in light of the inconclusive Italian elections.
“Expectations are that Draghi will play it pretty dovish,” Krosby said. “The market is focused on whether he will make an announcement suggesting that the taper, the quantitative easing there, is gaining strength. We think he’ll probably stay clear of that right now.”
Earnings releases to watch:
This week’s important data releases:
Monday: PMI service sector index; ISM Non-Manufacturing Index
Tuesday: Factory Orders
Wednesday: ADP Employment Report (private payrolls); Beige Book
Thursday: European Central Bank meeting
Friday: Employment Report
Read Quincy Krosby’s full Q1 Market Commentary: Turning the Page.
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.