Geopolitics, earnings and inflation news dominated the global investment environment this week. While earnings news was generally positive, higher geopolitical risk and inflation helped push U.S. markets lower. The S&P 500 fell 1.1% through Thursday and the Dow Jones Industrial Average dropped 1.0%. The NASDAQ slid 1.2%.
The U.S. dropped the “Mother of All Bombs” in Afghanistan, returning attention to the ongoing conflict with terrorism. In Europe, geopolitical risks increased with the renewed uncertainty in the French presidential election given the ascendance of the far-left candidate Jean-Luc Melechon in recent polls.
Corporations are continuing to report first quarter earnings. Financial companies generally beat expectations. JPMorgan, in particular, had a strong quarter. Trading revenue was much higher than expected and core loan growth was up nine percent year over year. [i]
The global inflation picture remains mixed. U.S. PPI came in lower-than forecasted depicting inflation pressures were benign, so far. In China, consumer prices came in marginally below expectation at 0.9% versus 1.0% expected while the producer prices were marginally above consensus at 7.6% compared to 7.5% expected.
What are we reading?
Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:
The U.S. job market remains tight. According to the Labor Department report, U.S. job openings, a measure of labor demand, increased 118,000 spots to a seasonally adjusted 5.7 million in February, which is a seven-month high. However, the pace of hiring slipped indicating to the further tightening of labor market conditions. The U.S. labor market is now viewed as being near or at full employment, with the unemployment rate at a near 10-year low of 4.5%.
China’s economic data continues to be solid, but businesses are struggling to pass along higher costs. Consumer price index in China increased 0.9% in March. On the other hand, producer price index moderated to 7.6% narrowly beating forecasts. The gap between the two indexes indicates that the recovery isn’t solid and that there is little pass-through of higher commodity prices to consumer goods.
Inflation pressures aren’t as potent in the U.S. producer price index declined a seasonally adjusted 0.1% in March versus no-change expectations, suggesting inflation pressures remain muted. Core PPI increased 1.7% in the 12 months through March after advancing 1.8% in February. The decline is attributable to lower cost of services as well as low oil prices.
Fun Story of the Week
From the Life Defined Files: Rather than seek studio funding for a reboot of the Comedy Central cult classic Mystery Science Theater 3000, the creators of the show launched a campaign on the funding platform Kickstarter to raise money from fans of the show.
The show revolves around a pilot and three robots who make comments about the bad ‘B’ movies they are forced to watch by mad scientists. How much money can you raise from the fans of a TV show whose viewers basically watched a terrible movie and four people talking during the film? $6 million – the highest grossing Kickstarter campaign for a film or video in its history. For the curious, the show just arrived on Netflix Friday. For fans, MST3K is back![ii]
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