A series of geopolitical events and top-tier economic data kept U.S. stocks in a narrow trading range this week, while overseas indexes were more of a mixed bag.
Traders kicked off the week on a positive note after President Trump’s late-Sunday tweet confirmed tariff increases planned for March 1 would be delayed given “substantial progress” in trade negotiations. However, other geopolitical events took some wind out of the markets’ sails, including Congressional testimony from U.S. Trade Representative Robert Lightizer indicated that any deal with China that doesn’t address structural issues (including IP protections and forced technology transfers) would not be worth having, and recent reports suggest there is still much work to do on that front. President Trump also walked out of a two-day summit with North Korean leader Kim Jong Un due to the foreign leader’s unrealistic demands in return for partially denuclearizing the country.
Investors also had plenty of economic data to digest. Reports on the U.S. consumer showed Americans' views on present conditions hit an 18-year high, while fourth quarter gross domestic product grew 2.6% year over year, topping analysts’ forecasts. “The relatively strong GDP growth in the fourth quarter, accompanied by a rebound in consumer confidence, was very encouraging,” said LPL Chief Investment Strategist John Lynch.
Meanwhile, another round of housing data showed a jump in pending home sales and mortgage applications following the Federal Reserve’s (Fed) pivot last month to a more accommodative stance on monetary policy. An ISM report, though, showed U.S. manufacturing activity fell to a two-year low.
The generally better-than-expected data spurred an uptick in investors’ longer-term growth expectations, which pushed the benchmark 10-year Treasury yield up 10 basis points (bp) on the week, while the 2-year note rose 8 bp, steepening the yield curve slightly. The improved outlook also led to U.S. dollar strength, which helped put downward pressure on gold and oil prices.
Foreign data wasn’t as upbeat, though. Japan’s Nikkei Index outperformed major U.S. indexes despite factory output in the export-oriented economy falling by the most in a year as the country continues to grapple with the slowdown in global trade. Positive trade developments and additional government stimulus measures propelled China’s Shanghai Composite to its best week since June 2015, even as official Purchasing Managers' Index (PMI) data showed manufacturing activity hit a three-year low in January.
Turning to the week ahead, the U.S. economic docket is headlined by the February nonfarm payrolls report. Overseas, the European Central Bank meets and fourth quarter Eurozone GDP will be released. Japan’s fourth quarter GDP is also due out, along with Chinese consumer and producer inflation. Track these and other important events on our Weekly Global Economic & Policy Calendar.
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