Markets and rates fall on trade war concerns

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Published Date 4/6/2018

Last night President Trump announced $100B more in tariffs. Stocks were hit hard again today on low volume but reacting to Trump’s comment.

Today Treasury Sec. Mnuchin commented the administration is prepared for an escalation of its trade dispute with China. "Our objective is still not to be in a trade war with China," Mnuchin said on CNBC's "Power Lunch." "I'm cautiously optimistic that we will be able to work this out." But, he added, "there is the potential of a trade war."….. "Our objective is still not to be in a trade war with [China]," Mnuchin said on CNBC's "Power Lunch." "I'm cautiously optimistic that we will be able to work this out." ….But, he added, "there is the potential of a trade war." Meantime Chinese officials are saying in essence, bring it on.

This afternoon Fed chair Powell speaking in Chicago added his wet blanket saying he thinks the Fed will likely need to keep raising interest rates to keep inflation under control.

Mix all that together in an already weak stock market and the markets fell hard this afternoon on thin volume; at one point the DJIA -750.

The bond and mortgage markets improved this morning but didn’t add more gains this afternoon on Powell’s remarks of higher rates.

March job growth slowed more than expected but still strong, the unemployment rate unchanged at 4.1%.

This afternoon Feb consumer credit at +$10.6B from +$15.6B in Jan. Revolving credit (use of credit cards) inched only $0.1 billion higher in February for the lowest result in 4-1/2 years. Other than those less reliant consumer sentiment indexes the truth continues to grow that consumers have pulled way back on spending. Consumers may say they are optimistic but the proof of the pudding is in the eating and consumers are not eating much these days.

Next week: No scheduled data on Monday. Tuesday, Treasury will sell 3 yr notes; the March NFIB small business optimism index; March PPI; Feb wholesale trade. Thursday, Treasury will sell 10 yr notes; March CPI; FOMC minutes from the March meeting. Thursday, March import and export prices; Treasury sells 30 yr bonds. Friday U. of Michigan mid-month consumer sentiment index.

The 10 yr yield moved back into the three-month consolidation area yesterday when it closed at 2.84% (2.90% to 2.80%); today back below 2.80% at 2.77%. Long-dated interest rates are being pulled in both directions; the Fed is prepared to increase rates and continually talking up the inflation outlook while on the other the trade fears that may escalate into more than what most have been thinking dropping stock indexes. No major flight to safety in the markets; gold not moving and rate markets not improving. There is actually no trending movement in the 10 or 30 yr treasuries and keeping MBS prices also tied to tight ranges.

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