For the Week ending April 14th, 2017

April 18, 2017

Stocks ended lower for the holiday-shortened week, with the U.S. and many global markets closed for Good Friday. Trading volumes were exceptionally low early in the week, with fewer shares trading Monday than on any day so far this year. The smaller-cap indexes, which are typically more volatile, lagged their large-cap counterparts. The technology-heavy Nasdaq Composite Index also under-performed slightly, weighed down in part by weakness in semiconductor shares on news that Apple was developing its own chips for its IPhones.

While market volumes may have suggested that many investors were off on spring vacations, those who were in the office seemed to be preoccupied with rising tensions overseas. Stocks suffered a brief sell-off on Monday, following unconfirmed reports that China was deploying troops along its border with North Korea, and worries over escalating tensions in the region continued to weigh on sentiment throughout the week. Similarly, investors kept a close eye on the conflict in Syria and how it was affecting relations between the U.S. and Russia. News on Thursday that the U.S. had dropped the largest non-nuclear bomb in its arsenal in Afghanistan also appeared to spark a sharp drop in share prices to end the week.

Meanwhile, both global equity market volatility and the holiday-shortened week contributed to a quiet week in the investment-grade corporate bond market. Technical conditions remained favorable amid light new issuance and healthy demand. The firm’s analysts noted that the primary calendar was expected to pick up after a number of large banks released earnings Thursday. High yield market activity was fairly subdued amid light volumes and as many investors seemed to remain on the sidelines ahead of the long weekend. However, the handful of new deals that priced received decent interest. Actively managed and exchange-traded funds reported outflows for the week.

European equities ended the holiday-shortened week lower, with banking stocks acting as the biggest weight on the pan-European index Stoxx 600. Bank stocks were hurt in part by the rally in global fixed income markets, as well as the news that President Trump believed that the U.S. dollar was getting too strong. Traders noted that the risk-off trade seen in the U.S. midweek spilled over into Europe on Thursday. Mining stocks were also laggards, and news of a contraction in industrial production also weighed on markets. Automotive stocks were a bright spot at midweek, rising following strong first-quarter earnings results from Daimler. (All European markets are closed on Good Friday and Easter Monday.)

Japanese stocks stair-stepped lower through Thursday’s close, recording a fifth consecutive week of losses and settling at their lowest level since mid-December. The Nikkei 225 Stock Average fell 1.2% (237 points) and closed at 18,426.84. Year-to-date, the Nikkei is 3.6% lower, the broad-based TOPIX Index is down 3.3%, and the TOPIX Small Index is off 2.1%. The yen continued to strengthen, closing slightly above ¥109 per U.S. dollar, about 6.8% stronger than ¥117 per U.S. dollar at the end of 2016.

China’s exports and trade surplus jumped more than forecast in March, offering a potential flash point in U.S.-China relations at a time of heightened concern about Beijing’s trade practices. Exports rose 16.4% in March from a year ago in dollar terms, offsetting a small decline in February, while imports rose by roughly 20% after surging about 38% the prior month. China’s trade surplus for March totaled $23.93 billion, reversing a $9.15 billion deficit in February.

As a candidate, Donald Trump promised to brand China a currency manipulator and to reduce the U.S. trade deficit with China, but the president has lately walked away from both pledges. After meeting with China’s President Xi Jinping in early April, both leaders agreed to a “100-day plan” on trade matters with the goal of reducing the U.S. trade deficit with China. The previous week, Trump said in an interview that he wouldn’t label China a currency manipulator. The U.S. trade deficit widened to a four-year high of $502.25 billion in 2016, with China accounting for most of the gap, the Commerce Department reported in February.

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