Daily Market Color

Financial Markets Fluctuate with Tariff Uncertainty


Mnuchin Weighs in on Tariffs

This morning Treasury Secretary Steven Mnuchin tried his hand at attempting to defuse the outsized backlash received from President Trump’s pledge for global tariffs on steel and aluminum imports.  Mnuchin downplayed the potential for trade wars while clarifying that “we are looking to make sure U.S. companies can compete fairly around the world.”  A potential positive for the United States’ neighbors to the north and south, Mnuchin presented that “to the extent that we’re successful in renegotiating NAFTA, those tariffs won’t apply to Mexico and Canada”.  Aside from North America, however, the European Union is already rumored to be preparing a 25% punitive duty on a number of consumer, agricultural and steel products imported from the U.S., aimed to put pressure on US politicians from certain impacted states.



US stocks fluctuated between gains and losses throughout the day as markets reacted to the ever-abundant tariff chatter.  Major equity indices ultimately finished higher for the session as the tech-heavy Nasdaq rose 0.55%, S&P 500 gained 0.25% and DJIA inched 0.05% higher.  US Treasurys held within a tight range, as the 10-year note yield edged lower to 2.87%.  In the energy sector, today kicked off the five-day CERAWeek conference in Houston, where many of the oil industry’s largest players will gather.  Today’s featured speaker was the CEO of Saudi Aramco, Amin Nasser, who stressed that members “push back on the idea that the world can do without proven and reliable sources” and promoted a bullish outlook on future demand, although his comments may be expected given the anticipated IPO of Saudi Aramco stock.  Overall, WTI crude held near unchanged on the day at $62.45/barrel as investors await further supply data set to be released this week.     



Factory Orders Slow Down

Factory order data for January was released today, displaying a minor pullback in the manufacturing sector in the US.  Overall factory orders declined 1.4% (matching expectations) for the month, composed of a 3.6% tumble in durable goods orders and 0.8% rise in non-durable goods orders.  The 1.4% decrease in new orders represented the steepest drop-off in the past six months, although on a YoY basis orders jumped 8.4%.



Volcker Rule Remains in Focus

In regulatory news, Federal Reserve Vice Chairman Randal Quarles indicated that regulators are working “quickly to make material changes” to the Volcker Rule.  The revisions are aimed specifically to simplify the definition of market making.  The current regulation is very confusing, resulting in difficulties for banks to maintain compliance. Quarles stated that “banks spend far too much time and energy contemplating whether particular transactions or positions are consistent with the Volcker Rule.” Revisions will not only provide greater clarification but are likely to relax many of the market-making restrictions.  Arriving at a consensus across the five regulatory agencies on specific new rules on Volcker will be a challenge, but the Fed appears confident that a proposal for change will be forthcoming soon.

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