Growing international tensions from Syria to North Korea pushed investors out of stocks and into safe-haven assets like sovereign bonds and gold.
In the U.S., stocks had their second worst week of the year, with all of the major indexes falling by more than 1%. Foreign stocks were also down pretty much across the board. But bonds had their best week of the year, with prices rising enough to push yields on long-term U.S. Treasury securities down by double-digits. The yield on the benchmark 10-year note fell 14 basis points to 2.24%, its lowest level since last November. Yields on other safe-haven bonds, like German bunds and Japanese government bonds, were also lower. But yields on riskier bonds, such as Italian sovereigns, were sharply higher. Gold rose 2.5% to $1286 an ounce, its highest level since before the presidential election. Market trading was shortened by the Good Friday holiday, with most international markets closed except for some in Asia. European markets are also closed for Easter Monday.
The few U.S. economic reports released last week came in lower than expected. Retail sales fell for the second straight month, falling 0.2% in March after declining by a downwardly revised 0.3% in February, which was originally reported as a 0.1% increase. Inflation also eased last month. The Consumer Price Index fell 0.3% compared to February, the steepest drop in more than two years, while the core barometer, excluding food and energy prices, fell 0.1%, its first monthly decline since January 2010. Producer prices were likewise lower, falling 0.1%, the first decline since August, while the core rate was unchanged.
Despite the weaker indicators, Federal Reserve Chair Janet Yellen pronounced what most people already knew – that the era of accommodative monetary policy has largely come to an end. Speaking at the University of Michigan – importantly, before the economic reports listed above were released – Yellen said, “Where before we had our foot pressed down on the gas pedal trying to give the economy all the oomph we possibly could, now we’re allowing the economy to kind of coast and remain on an even keel,” she said. “To give it some gas, but not so much that we’re pressing down hard on the accelerator.”
Speaking of Yellen, President Trump had some fairly kind words to say about her, in contrast to the more confrontational stance he had taken during the presidential campaign. He even left the door open to possibly nominating her to another term as Fed chief.In aninterview with the Wall Street Journal, the president was asked if Yellen was “toast” when her term ends in 2018, to which he replied “No, not toast. I like her, I respect her,” he said, while noting “It’s very early” in possibly naming her to a second term. One reason could be her dovish monetary policies. “I do like a low-interest rate policy, I must be honest with you,” he said.
Reports/dates/facts/links worth paying attention to over the next week:
1. April 17: Empire State manufacturing survey for April; National Association of Home Builders housing market index for April.
2. April 18: Housing starts for March; industrial production for March.
3. April 19: Federal Reserve Beige Book.
4. April 20: Weekly unemployment claims; Philadelphia Fed business outlook survey for April; leading economic indicators for March.
5. April 21: Existing home sales for March.