Daily Market Color April 4, 2018China’s Retaliatory Tariffs Drive Volatility in Financial Markets Trade War or Negotiation? US financial markets opened this morning with a dramatic flight to safety after it was announced that China would be imposing a retaliatory 25% tariff on roughly $50 billion of US imports. The levy will apply to roughly 106 types of US goods (vs. the 1,300-item list of tariffs America plans to impose on China), with the largest impacts expected to be felt in the soybean, aircraft and automobile industries. While the news initially pointed towards an increased likelihood of a trade war, market sentiment eased throughout the day as investors received feedback from both US and Chinese officials. US Commerce Secretary Wilbur Ross downplayed the much of the uncertainty related to the new tariffs, stating that they “shouldn’t surprise anyone.” Meanwhile Chinese Vice Finance Minister Zhu Guangyao viewed both sides’ actions as a precursor to trade talks, explaining that “both sides have put their lists on the table,” and “now it’s time for negotiations”. Neither China nor the United States’ tariffs take effect immediately, leaving open the possibility for a deal to be struck in the meantime. Major US stock indices plummeted at the open before paring losses and finishing in the black for the session. The DJIA rallied more than 700 points from today’s lows to close with a 0.95% gain, while the S&P 500 posted a 1.15% rise and the tech-heavy Nasdaq climbed 1.45%. US Treasurys sold off into the close, as yields/swap rates increased 1-4bps across the curve, bringing the 10-year note yield back above 2.80%. In commodities, a larger-than-expected drop in US crude inventories helped to offset the negative sentiment from the tariff news, leaving WTI nearly unchanged at $63.35/barrel. A report from the Energy Information Administration displayed a 4.62-million barrel drawdown in the US crude supply last week, supported by a record number of exports and reduced imports. Robust ADP Payrolls, Again The ADP national employment report was released today, showing 241,00 new hires by private employers in the US during March, exceeding expectations of 210,000. The figure represents a fourth consecutive month of robust employment metrics, as February’s upwardly revised number reached a eleven-month high of +246,000. Steady employment gains were observed across most major industries, with payrolls in professional/business services (+44k) and construction (+31k) generating the largest additions. Often a leading indicator for the Labor Department’s more comprehensive employment report, today’s ADP figure foreshadows steady gains in Friday’s nonfarm payroll data, where median forecasts point to a 185,000 nonfarm payroll addition and 4.0% unemployment rate.