China, Tariffs: Wealth Economic Update Apr. 6, 2018

U.S. and World News

  • The trade negotiation between the United States and China has gained popularity in the news this week as new tariffs are announced by either side seemingly every day. Both sides appear to be playing a game of chicken as it relates to trade; on Monday, China implemented tariffs of 25% on 128 U.S products totaling $3 billion in response to the United States recently imposed steel and aluminum tariffs. The United States quickly retaliated on Wednesday with an additional $50 billion worth of 25% tariffs on 1,300 Chinese products to which China responded with tariffs on 106 more U.S products totaling $50 billion on products such as cars, whiskey, and soybeans. Thursday evening President Trump announced that he had told the U.S trade representative to look into whether $100 billion in additional tariffs would be appropriate. China ambassador Cui Tiankai discussed the United States levying further tariffs on Chinese products in an interview Monday stating “If they do, we will certainly take countermeasures of the same proportion, and the same scale, same intensity”.

Markets

  • The markets sold off this week, prolonging the ongoing correction. The S&P 500 lost 1.35% and closed at 2,604.47. The Dow Jones fared slightly better losing 0.67% and closed at 23,932.76. Year to date, the S&P is down 2.08% and the Dow Jones is down 2.60%.
  • Yields moved higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 59% and 2.77%, respectively.
  • The spot price of WTI Crude Oil decreased by 65% this week, closing at $61.92 per barrel. Year to date, Oil prices are up 3.01%.
  • The spot price of Gold rose slightly higher this week by 57%, closing at $1,333.03 per ounce. Year to date, Gold prices are up 2.32%.

Economic Data

  • Initial jobless claims rose 24,000 to 242,000 for the week which was larger-than-expected. The largest increases were in California, New York, and Pennsylvania. The four-week moving average moved up 3,000 to 228,000. The pace of layoffs still remains very low.
  • The ISM manufacturing index fell 1.5 points to 59.3 in March versus expectations of 59.7. The decline in employment and new orders led the decline for the month, however the pace of manufacturing growth remains very strong
  • Construction spending rose 0.1% in February versus expectations of a 0.4% increase and the decline was led by public construction spending as opposed to private construction spending.
  • Private Sector ADP employment rose 241,000 in March exceeding expectations of a 210,000 gain. The gain in private sector employment was led by professional and business services and trade, transportation, and utilities.
  • Nonfarm payrolls came in at 103,000 for the month of March below consensus expectations of 185,000. The weakness in job growth for the month of March is believed to be the result of severe winter weather.
    • Average hourly earnings rose by 0.30% in March and the year-over-year rate rose 0.1% to 2.7%.
    • The unemployment rate remained at 4.1% versus expectations of a decline to 4.0%.

 

Fact of the Week

  • The US bond market (including treasury, municipal, corporate, mortgage and asset-backed debt) was worth $40.8 trillion as of 12/31/17. The US bond market was worth $4.1 trillion as of 12/31/85 (Source: Securities Industry and Financial Markets Association).

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

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