Amid Bear Market Fears Watch US and China CPI; US Business and Consumer Confidence; Bank Earnings

Amid Bear Market Fears Watch US and China CPI; US Business and Consumer Confidence; Bank Earnings

Talking Points:

• The S&P 500 suffered a more than -10 percent loss in just the last two days of the past week – one of the most severe moves in four decades
• Trade wars are starting to sink in with serious concerns around risk at the same time inflation pressures complicate outlets of hope like rate cuts
• Inflation pressures for the US and China, consumer and business sentiment in the US and bank earnings are top scheduled event risk ahead

An Unmistakable Sense of Fear is Creeping In

The markets and investor confidence were under severe duress to end this past week. Benchmark ‘risk’ was already deviating from its seasonal course through March and into April with spring usually a period for gains for the likes of the S&P 500. With the fallout from the reciprocal tariff news from the White House Rose Garden Wednesday evening – and China’s retaliation on Friday – fear metastasized. For the aforementioned benchmark index, the week’s loss was the biggest in five years.

Chart of S&P 500 with 2-Day Rate of Change and 2-Day Declines Over -10% (Daily)

 

Source: John Kicklighter, Standard & Poor’s

When looking at just Thursday and Friday combined, the more than 10 percent contraction represented one of the largest back-to-back declines in modern market history – with only three other move of this intensity in the past four decades. Perhaps we can find solace in the statistics that show there are just as few instances of three consecutive declines of more than 2 percent from the benchmark equity index in the same time span. However, if President Trump does not offer some soothing words to the world’s markets, the ‘buy the dip’ mentality may not hold – or potentially even show up in the first place.

Calendar of Top Global Macro Event Risk

 

Source: John Kicklighter

 

Interest Rate Decisions are Interesting, US and China Inflation is Systemically So

AWhen considering the top scheduled event risk over the coming week, we have to consider the underlying mood of the market and the thematic priorities to gauge how updates could impact there relevant markets. There is a lot to consider through the first half of the week including Chinese and Hong Kong foreign exchange reserves, Canadian business and Japanese economic sentiment surveys as well as expected Reserve Bank of New Zealand (RBNZ) and Reserve Bank of India (RBI) rate cuts.

These are important updates contextually, but truly tapping into the vein of the market’s current fears to pile onto or ease the pressure, I will look to event risk like the Chinese and US inflation data due Thursday. These are reading for March, so not indicative of the more recent escalation in trade tensions between the two countries, but there have been financial burdens in the form of tariffs since February. If the impact is significant prior to this past week’s massive increase in import levies, the implications for the future will not bode well when it comes to averting stagflation.

Chart of USDCNH Overlaid with US-China CPI YoY

 

Source: John Kicklighter, TradingView

 

US Business and Consumer Confidence Will Show How America Feels about Trade Wars

In general, there is a range of interesting sentiment data due over the coming week largely meant to represent the month of March, but will ultimately draw on expectations for what was and is ahead. While there are multiple countries releasing confidence reports, it is the US data that I am most interested in. On Tuesday, the NFIB Business Optimism Index will reflect on how America’s producers and employers are feeling amid trade tensions that are theoretically aimed at helping them against international disadvantages.

We will see if they feel that way with optimism – with investment and hiring plans – or they are otherwise troubled by cancelled foreign orders and rising inflation pressures. Friday, we are due the University of Michigan’s consumer confidence survey. The backbone to the country’s economy and arguably a key engine to global growth, how is the American consumer feeling amid a market swoon and souring economic forecasts? Tacit concern from this group could further fear market fears.

Chart of US Consumer and Business Sentiment, GDP and Official Recessions (Weekly)

 

Source: John Kicklighter, TradingView, UofM and NBER

 

Earnings Season Begins with a Very Dark Cloud Overhead

Finally, at the end of the week, we will be moving in earnest into the earnings season. As usual, the major financial players will kick us off with a particularly volatile backdrop to draw from in terms of growth fears, a capital market falter and international barriers in finance alongside goods trade. While the updates from Wells Fargo and Morgan Stanley are certainly worth registering, the figures from JPMorgan and BlackRock are far more interesting. For the latter, the top money manager can offer a bigger representation on the risk profile of the larger market. And as for JPM, the largest bank in the world and 13th largest market cap stock in the US will offer a critical steer on a fraught area of the financial system before the Mag 7 start to take over our focus.

Chart of JPMorgan and Dow Jones Industrial Average (Daily)

 

Source: John Kicklighter, TradingView

 

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-- Written by John Kicklighter, Global Head of Content