Global Stocks Climb as Trade Fears Ease U.S. stocks were poised to push higher, as global equities continued their resurgence after fears of a trade war between the U.S. and China subsided.
The two market tantrums of January and March taught us that investors’ concerns are highly centered on wage trends and relative trade harmony. In effect, investors are most concerned about inflation, and rightly so.
They have shown much less concern about interest rates and central banks actions, even though they are themselves highly focused on inflation.
What that could mean is that investors believe that as long as wages do not accelerate strongly and trade tariffs don’t suddenly boost prices, inflation is not a pressing problem.
The next few months will be telling about that.
INFLATION WATCH
Underlying Inflation Gauge (UIG)
- The UIG derived from the “full data set” increased slightly from a currently estimated 3.01% in January to 3.06% in February.
- The “prices-only” measure increased slightly from 2.17% in January to 2.2% in February.
- The twelve-month change in the February CPI showed a slight increase from the January reading—the same pattern observed in the case of the UIG measures.
The UIG measures currently estimate trend CPI inflation to be approximately in the 2.2% to 3.1% range, with the prices-only measure close to the actual twelve-month change in the CPI. Recent analysis suggests the rise in the full-data-set UIG compared to the prices-only measure is being driven principally by survey measures of manufacturing and nonmanufacturing activity.
According to Doubleline (Jeff Gundlach), the correlation between the UIG (full data set) and actual inflation is 80% with a 16-month lag. Looks like the Fed will get its wish fulfilled…and maybe more.
U.S. Light-Vehicle Forecast: Sales Down Slightly; Inventory Declines to Match Demand
A Wards Intelligence forecast calls for U.S. automakers to deliver 1.60 million light vehicles in March. The forecasted daily sales rate of 57,170 over 28 days marks a 0.3% decline from like-2017 (27 days). The DSR is 6.1% higher than February (24 days). The report puts the seasonally adjusted annual rate of sales for the month at 16.9 million units, higher than last year’s 16.7 million but slightly under last month’s 17.0 million.
China’s Central Bank Sends Yuan Surging China’s central bank guided the yuan to its strongest level against the U.S. dollar since its surprise devaluation more than 2½ years ago on Tuesday.
(…) Analysts said it wasn’t clear what triggered the yuan’s rally this week. (…) The yuan may get a boost in the longer run if more foreign investors buy Chinese debt. Bloomberg LP on Friday said it plans to include Chinese bonds in its Bloomberg Barclays Global Aggregate Index next year. The index would be the first major benchmark to include debt from the world’s second-largest economy and could trigger passive flows that total $110 billion once the bonds are fully added to the index, according to Goldman Sachs. (…)
Whatever the reason, this recent move will help on trade and import prices.
U.S. Tariffs Open Rift Between Germany and France
Germany is ready to discuss with the European Union in every respect measures to counter the U.S. threat to impose tariffs, according to a government official in Berlin. That flexible approach to protecting Germany’s export-led industry risks alienating other EU countries including France, which according to a French government official doesn’t want the bloc to make any concessions. (…)
TECHNICALS WATCH
Lowry’s Research says that even though there was intense buying, yesterday did not qualify as a 90% Up Day, as NY Comp. Volume was 86% of total Up/Down Volume. “Confirmation of the strong Demand needed for a sustainable rally should come in the form of another 80% Up Day [Tuesday] or a 90% Up Day, plus the registration of a conventional short-term buy signal over the next 2-3 days.”