Despite an especially wild week for US stock markets, its currency was remarkably stable this last week with its index against a basket of major currencies contained within a range of less than one percentage point for the entire period. It opened on Monday at 89.65 and hit its low for the week later that day around 89.45. From then on, and despite all the talk of tariffs and trade wars and huge volatility in equity markets, the USD rose gradually to a best level on Friday morning of 90.17; its highest since March 1st. As non-farm payrolls fell short of consensus estimates with a monthly rise of just 103k, the USD lost almost half a point to end the week around 89.75; just one-tenth higher than where it had begun on Easter Monday.
Both the Dow Jones Industrial Average and the S&P 500 index ended lower in Q1, with their first quarterly losses since Q3 2015. As we began the second quarter on Easter Monday, both markets broke below their 200-day moving averages which had offered support during the early-February sell-off. The indices were almost 3% lower at one point but rallied to be around 2% lower at the close. On Tuesday, the Trump administration imposed 25% tariffs on some 1,300 industrial, technology, transport and medical products to try to force changes in Beijing’s intellectual property practices. “This level is appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China’s harmful acts, policies, and practices,” the U.S. Trade Representative’s office said in a report. As the US stock market dived on Wednesday – dragging all global equity indices lower in its wake – the Presidents new economic advisor, Larry Kudlow, duly popped up on 24-hour financial TV. Speaking on CNBC he said, "Don't overreact, we'll see how this works out... At the end of this whole process, the end of the rainbow, there's a pot of gold." Asked on Fox News if there is a trade war, he replied, “Absolutely not. Absolutely not. And let me just say right at the top, number one, blame China, not President Trump.” The DJIA rallied 800 points from its low on Wednesday!
With all the focus on tariffs and trade over the past few weeks, Thursday brought a timely reminder of why President Trump is so agitated about the subject. The US trade deficit grew by 1.6% in February from $56.7bn to $57.6bn and was the highest monthly trade deficit in ten years, going back to the GFC in 2008. Away from trade, there was plenty of other US economic data too. The ADP Survey of private sector payrolls showed an increase of 241k on the month whilst factory orders rose 1.2%. The ISM non-manufacturing index printed at 58.8, which was 0.7 percentage point lower than the February reading of 59.5. On Friday, the labour market report showed just 103,000 k=jobs were created in March compared to expectations of a 195k increase. The unemployment rate held steady at 4.1% and though earnings ticked up to 2.7%, this was still below the level which prompted the stock market panic at the start of February. Nonetheless, the DJIA fell more than 500 points on Friday. The USD index ended the week around 89.75.