RECAPPING LAST WEEK

A historic mid-week rally lifted U.S. equity indices into the green, but volatility remained at nauseatingly elevated levels as trade war tensions kept investors on edge. U.S. stocks posted their biggest rally in years on Wednesday after the White House announced a pause on all reciprocal tariffs except for China. The S&P500 index soared 9.5%, its largest one-day gain since October 2008, and finished 5.7% higher for the week. The Nasdaq Composite jumped more than 12% on Wednesday before settling with a 7.3% weekly gain, while the Russell 2000 rose nearly 2%. U.S. Treasury yields saw their biggest weekly spike since 2001, while the dollar index tumbled nearly 3%, suggesting flagging confidence in traditional safe-haven assets. While the 90-day pause on reciprocal tariffs with many countries offered hope for negotiation, the escalation of U.S.-China duties to unmarketable levels threatened to halt most goods trade between the world’s biggest economies.

Gold futures skyrocketed 6.3% to new record highs near $3,250 per ounce, while crude oil slid more than 1% after Saudi Arabia announced price cuts in response to an expected decrease in demand. In economic news, U.S. CPI eased in March, with the 12-month inflation rate falling to 2.4% from 2.8%. Producer prices fell 0.4% MoM as energy costs softened. While largely irrelevant in the broader context, Fed officials might take minor solace in that pre-tariff consumer price pressures weren’t surging. Conversely, inflation expectations for the next year leaped to 6.7%—the highest level since 1981—in April’s preliminary consumer sentiment survey. U.S. consumer borrowing unexpectedly declined in February as Americans pulled back on auto loans and credit card balances. Small business optimism dropped for a third straight month in March, with labor quality remaining the top issue. Minutes from the last FOMC meeting revealed a nearly unanimous view that the U.S. economy faced risks of higher inflation and slower growth. Earnings season began with major U.S. banks reporting profits that beat forecasts while warning of tariff risks.

Overseas, China’s CPI contracted for a second straight month and producer
price deflation accelerated as exporters braced for the impact from the intensifying trade war with the U.S. In the UK, economic growth surprised to the upside in February as services and construction output recovered strongly from a gloomy January reading. Finally, investor sentiment in the Eurozone fell sharply this month, as the positive expectations from Germany’s spending plans were overwhelmed by the uncertainty arising from tariffs.

THE WEEK AHEAD

Investors may welcome a shortened week as U.S. markets will be closed for the Good Friday holiday. Volatility doesn’t appear to be dissipating anytime soon, unfortunately, and there are plenty of economic releases packed into the abbreviated schedule. In the U.S., March’s retail sales report is slated for release on Wednesday. Many observers expect these numbers to reflect consumers’ front-loading large purchases ahead of tariff imposition. Fed Chair Powell is scheduled to speak at a conference Wednesday afternoon, while other committee members will make appearances throughout the week.

The rest of the U.S. economic calendar includes Empire State and Philly Fed manufacturing indices, industrial production figures, and housing starts and permits. This week also brings earnings reports from financial companies such as Goldman
Sachs, Citigroup, Bank of America, and American Express, along with technology firms Taiwan Semiconductor, ASML Holding and streaming giant Netflix. Some companies have already withdrawn earnings guidance, further contributing to a nebulous outlook.

Overseas, there are central bank decisions due in Europe and Canada. The European Central Bank meets Thursday, and interest rate markets are pricing in a quarter-point rate cut to 2.25%, along with two additional cuts by year-end. The Bank of Canada is expected to keep rates steady at 2.75%, having already cut by 225 basis points in this cycle. Elsewhere, China’s monthly data dump arrives Tuesday evening, including GDP, industrial production, and retail sales figures. Consumer inflation updates from the UK and Japan round out the international calendar.

(Schwab)