LAST WEEK – KEY TAkeAWAYs
Markets volatile but positive as trade war fears reduce
- First week of April a strong one for equities, despite ongoing ‘trade war’ fears between the US and China.
- Donald Trump tweets “President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its trade barriers because it is the right thing to do”.
- After the US detailed the $50bn of tariffs on Chinese goods, Beijing responded with its own targeted list. President Xi is set to comment on situation in speech on Tuesday.
- The Omnis view: we still believe this is a case of both sides posturing for negotiation. A full trade war is not in the interests of any nation.
US job gains slow, but labour market remains healthy
- Widely followed non-farm payrolls measure shows US created 103,000 jobs in March, against analyst predictions of around 190,000.
- Employment increased in manufacturing, health care and mining, while retail trade and construction dipped.
- However, US labour market remains healthy with unemployment at 4.1% for sixth straight month.
- The Omnis view: the US economy remains in a strong state though market valuations reflect this.
France hit by train strikes as workers protest against economic reforms
- Train staff begin three months of nationwide rolling strikes in dispute over government’s planned overhaul of state-run railway SNCF.
- It’s the latest of Emmanuel Macon’s economic reforms, and potentially the toughest challenge of his presidency so far.
- Macron is taking a pro-business and pro-liberalisation stance as he looks to modernise the French economy and fix troublesome public finances.
- The Omnis view: these measures may cause temporary pain for Macron’s popularity, but the reforms are needed to modernise France’s labour practices.
New hopes for progress in forming Italian government
- A month on from the Italian election, which ended in a hung parliament, fresh talks are underway to form a coalition government.
- Anti-establishment 5-Star Movement were largest single party, with leader Luigi Di Maio calling on his Democratic Party rivals to “bury the hatchet” and consider a governing coalition with his party.
- However, Italy’s three rightist parties - the League, Brothers of Italy and Silvio Berlusconi’s Forza Italia - have presented a new united front with hopes of an alliance.
- The Omnis view: the formation of an Italian government may take some time and its makeup does not seem to bother investors at present.
Eurozone jobless rate falls to lowest figure in 10 years
- EU statistics agency Eurostat said unemployment across 19 eurozone countries fell to 8.5% in February, from 8.6% the previous month – the lowest level since December 2008.
- The number of people out of work fell by 141,000 to below 14 million.
- While unemployment was down, annual eurozone inflation jumped to 1.4% in March, ending several months of decline.
- The Omnis view: we are encouraged by the eurozone’s ongoing reduction in unemployment, though no central bank action is likely while inflation remains below 2%.
Looking ahead - TALKING POINTS
US Fed minutes and inflation figures due
- On Wednesday, the Federal Reserve (Fed) will release minutes from its March 20-21 meeting, when it voted unanimously to raise its benchmark federal-funds rate to a range of between 1.5% and 1.75%.
- On Friday, Fed chairman Jerome Powell reaffirmed the central bank’s slow and steady path of raising interest rates. The March meeting minutes likely will reflect plans to continue this pace.
- Analysts are predicting the US core reading of inflation is set to hit 2% for March, matching the Fed’s target.
- The Omnis view: US inflation looks to be under control, so we would expect no more than two more rate rises in 2018.
US core inflation rate (%) – March 2017 to February 2018
Source: US Bureau of Labor Statistics, tradingeconomics.com
China trade balance back in the spotlight
- While trade war rhetoric dominates headlines, China will release latest year-on-year data on imports and exports on Friday.
- Analysts predict exports were down markedly in March from the 44.5% growth in February, leading to a smaller trade surplus.
- Distortions in year-on-year trade growth that impacted February’s figures were caused by the festivities around the lunar new year.
- The Omnis view: President Xi Jinping is unlikely to announce market reforms to heal US/China trade relations at a speech on Tuesday. We await talks between the two sides.
China balance of trade ($ hundred million) – March 2017 to February 2018
Source: General Administration of Customs, tradingeconomics.com
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