The Weekly Update

Trade tensions, the US employment dump and Powell’s address on Friday commanded market attention last week. China released a list of reciprocal 25% tariffs on US imports totalling USD 50bn, this followed the US’s $50bn tariff list covering over 1,300 Chinese products. It did appear that China’s quick response was a signal to the US that it will not sit back and be bullied but there was also no indication of when the tariffs would come due, allowing bilateral negotiations to continue. President Trump did tweet that there is no trade war with China, and Chinese authorities stated their openness to talks highlighting that “it takes two to tango”. Then just when we thought the dust had settled, Trump suggested listing a further USD 100bn worth of goods subject to 25% tariffs in response to China’s alleged “unfair retaliation”, with China looking to do whatever it takes and fight “to the end at any cost” in the face of US actions. The release of the US’s trade deficit, which had jumped to a 9.5 year high in February did little to calm market nerves, however, we believe there really is no positive outcome for either economy if they engage in a trade war, and remain convinced that current posturing will eventually end with a reasonable compromise; we continue to monitor the situation ahead of the final USTR approval on May 15.

The all-important US job report was broadly weaker-than-expected with only 103k jobs added (versus +185K consensus) while unemployment remained at 4.1% (vs 4%) and the participation rate decreased marginally; the labour market clearly remains strong and has proven to do so for some time now. Average hourly earnings are therefore the focal point for markets; both the month-on-month and year-on-year readings were in-line with expectations at 0.3% and 2.7%, respectively.  US Treasuries rallied off the back of the softer jobs data. In terms of Fed rhetoric, Atlanta Fed’s Bostic said he expects inflation to pick up to target within the next couple quarters and would not mind an inflation overshoot above 2%, adding that he is still looking for three hikes this year. Broadly, Fed members agree to maintain a gradual approach to rate hikes and feel it is too early to estimate the impact of proposed tariffs on the economy. All eyes were then on Powell following the jobs report, he once again stuck to the script reiterating the above approach to tightening, adding that he expects upside pressures to wage growth as the labour market strengthens further.

USTs therefore enjoyed an interesting ride over the course of the week eventually closing 3bps higher at 2.77%, while the dollar managed to find some ground with the DXY Index up 0.15%. Meanwhile, the offshore renminbi fell 0.77% against the greenback off the back of increased trade tension concerns and the yen was down 0.61%. The schizophrenic equity market sold-off again last week, the VIX spiked and growth related commodities had an uneasy week.

Aside from weaker-than-expected EU PMIs and UK economic data prints for February markets were politically focused; there were also a number of market players out enjoying the extended Easter break. Activity could pick up this week with: the release of China and US CPI and PPI readings, the Fed minutes release and various BoJ, ECB and Fed members speaking. Facebook’s Zuckerberg testimonies could also draw some attention on Tuesday and Wednesday. We will also hear from China President Xi at the Boao forum (or Asia’s Davos), many expect Xi will discuss the opening up of China’s financial markets in the face of trade tensions. The US Congressional Budget may also give some colour on upcoming Treasury issuance, which has added downward pressure to yields, especially at the shorter-end.

Today will see the IMF’s World Economic Outlook and we will hear from Japan Governor, Kuroda, as he begins his second term. Interestingly, John Bolton will take his position as US national security adviser later; he was once referred to as “human scum and bloodsucker” by North Korea, so it will be interesting to see how the meeting between the two nations will pan out next month, assuming it still goes through. Tuesday kicks-off with Italy and France IP prints and later we will get the US PPI readings. Markets could perk-up on Wednesday with the China CPI and PPI data, UK IP, followed by US CPI data; Bloomberg currently has the month-on-month core reading at 0.2%, and  2.1%yoy. The Fed minutes from March’s meeting could be of interest following the 25bps hike. With little data and activity expected on Thursday, markets will be looking to Friday’s China trade data releases and US JOLTS report. Mr Trump’s South America trip will see him attending the Summits of the Americas where he hopes to announce a NAFTA agreement; developments will be watched closely through the week. No doubt the ongoing trade games will continue to command market attention.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.