Daily Market Color

Risk-Off Trading Continues as Trade War Concerns Grow


Trade War Tension

Financial markets operated in a risk-off fashion yet again today as US stocks tied a bow on their worst week since January 2016.  The threat of a trade war with China continues to weigh on investor sentiment, intensified by Beijing’s retaliatory $3 billion new US tariff plans announced last night.  Furthermore, Chinese Ambassador Cui Tiankai would not rule out the possibility of scaling back on the nation’s purchases of US Treasurys (currently the largest holder of US debt), noting that “we are looking at all options.”



The S&P 500 and Nasdaq finished more than 2% lower for a second consecutive session, with the tech sector having its worse week since 2011.  The DJIA didn’t fair much better, declining 1.75%.  US Treasurys extended their rally as yields/swap rates declined 1-3bps across the curve.  The 10-year note yield slipped 1bp to 2.81%, closing near its lowest level of the week and down 12 bps from the highpoint of the week.



In commodities, crude gained 2.5% on the day, closing at $65.89 per barrel and rallying on the news that former UN Ambassador John Bolton would be replacing H.R. McMaster as national security advisor.  Bolton is known for his hardline stance on foreign policy, generating early speculation of a potential reestablishment of sanctions on Iran.  Overall, crude futures posted their best week in more than nine months.  



Steady Factory, New Home Sales Data

Headline durable goods orders climbed a robust 3.1% during the month of February, surging past median forecasts of a 1.6% rise, boosted by orders in airplanes, primary metals and machinery.  Core capital goods orders (nondefense, excluding aircrafts) jumped 1.8% (+0.7% expected) – the best gain in more than six months.  Adding to the steady outlook, core capital shipments rose for an eleventh straight month, up 0.9%, showing continued strength in business investment.



New home sales for February rounded out this week’s key economic data releases, where a slight 0.6% MoM decline to a seasonally adjusted 618,000 pace was reported, albeit upward revisions to the prior three months were included.  The figure fell just below median forecasts of a 620,000 rate, as purchases in the South rose a substantial 9%, but were more than offset by a 17.6% drop-off in the West.  New homes available on the market climbed to 305,000 in February (most in 9 years), and the outstanding inventory climbed to a 5.9-month supply.  Also detailed in the data, the median new home sales price increased to $326,800, a 9.7% YoY gain.