Stocks are continuing to lose ground this week as several firms have signaled profitability concerns in light of tariff pressures. Heightening trade tensions certainly aren’t helping either as Beijing approached the European Union in an effort to strengthen ties and undermine Washington’s influence. Meanwhile, President Trump is hosting Canadian Prime Minister Mark Carney at the White House today and investors will be looking for a reason to buy dips if the two sides appear closer to a deal. For now, though, market participants are tilting toward a risk-off posture against the backdrop of an uneventful economic calendar featuring a reminder that March’s trade deficit was the deepest on record due to consumers and businesses frontrunning early April levies. In response to the news, folks are reducing exposures to equities and the greenback in favor of Treasuries, cyclical commodities, forecast contracts, volatility protection instruments and index put options.
Trade Deficit Marks Record
The US’s trade deficit for March deepened to $140.5 billion, beneath the anticipated $137 billion and the $123.2 billion from the prior month. Imports were supported by orders of pharmaceutical products, motor vehicles and capital equipment. April data suggest that the surge in foreign purchases have declined significantly, a result of inventories being built up. Exports also rose to a fresh all-time high, however, to $278.5 billion, led by industrial supplies, durable goods, medical merchandise and energy commodities.
Investors Embrace Defensive Positions
All major equity benchmarks are retreating amidst negative sectoral breadth with investors only reaching for utilities and energy stocks. The Nasdaq 100, Russell 2000, S&P 500 and Dow Jones Industrial gauges are dropping 0.8%, 0.6%, 0.4% and 0.4%. Weighing on performance most are health care, technology and consumer discretionary, which are in the red by 1.7%, 0.8% and 0.6%. The utilities and energy segments are the only two positive components of the 11 majors, gaining 1.5% on defensive demand and 0.5% on a meaningful 4.3% climb in WTI crude oil prices. WTI is trading at $59.60 per barrel and other commodities are bullish as well, with silver, gold, copper and lumber advancing 2.2%, 1.8%, 1.8% and 0.1%. Treasuries are catching bids on slowdown fears and safe-haven interest, with the 2- and 10-year maturities changing hands at 3.79% and 4.35%, 5 and 1 basis point (bps) lighter on the session. Softer borrowing costs and increased pessimism regarding cross-border commerce are impeding the greenback though, as the US currency depreciates relative to the euro, pound sterling, yen, yuan, loonie and Aussie tender but appreciates against the franc. The Dollar Index is down 34 bps in reflection of the broad weakening.
Trade Deal and Fed Meeting To Dominate
As we approach the middle of the week, internal dynamics signal that the animal spirits from the heroic nine-day winning streak entering the month have dissipated. But things could change starting this afternoon or tomorrow, especially if President Trump nails a trade deal or two in short order. Strong support can also come from the Federal Reserve, if the central bank highlights its elevated attentiveness to labor market health while pointing to decelerating wage pressures. Also, another mention of transitory tariff inflation from Chair Powell will likely bolster investor sentiment, as a front-and-center debate takes place concerning whether Trump levies offer a one-time price jump or a permanent 0.5% to 1% hike to annualized cost figures. Either way folks, a return to bullishness in the near term depends on the Commander in Chief closing agreements and the US monetary policy authority propelling confidence in the economic landscape while tilting towards an accommodative posture.
International Roundup
Australia Housing Industry Sank in March
Approvals for dwellings fell 8.8% month over month (m/m) in March to 15,220 after declining 0.2% in the preceding month, according to the Australian Bureau of Statistics. The result was considerably worse than the 0.6% drop anticipated by economists but was still up 13.4% y/y. Within the private sector, approvals for dwellings not including houses dropped 15.1%, while houses sank 4.5%.
Canada Cuts its Trade Deficit
Canada trimmed its trade deficit from CA$1.41 billion in February to CA$510 million in March, a much stronger showing than the consensus expectation for imports to exceed exports by CA$1.6 billion. After imposing retaliatory tariffs on the US, imports from Canada’s southern neighbor fell 2.9%, contributing to a 1.5% decline in products and services entering the country. Exports to the US, furthermore, fell 6.6% but were almost entirely offset by rising shipments to other trading partners.
Europe Industrial Prices Weaken
The euro area Industrial Producer Price Index (PPI) fell 1.6% m/m in March, in-line with projections and below April’s 0.2% increase. Relative to March of 2024, the PPI climbed 1.9% but fell below both the February advance of 3% and the consensus expectation for northward movement of 2%.
Within the headline m/m score, energy prices fell 5.8% while capital goods, durable consumer goods and non-durable consumer goods climbed 0.1%, 0.2% and 0.5%, respectively.
Growth Slows in China’s Services Sector
The China Caixin Services PMI weakened in April, falling from 51.9 in March to 50.7, but remained above the expansion and contraction threshold of 50. Forecasters estimated that the gauge would arrive at 51.7. In April, the pace of new business slowed, a result of new tariffs. Business sentiment, furthermore, sank to its lowest level since February 2020 and staff levels declined. Even though input costs have climbed, a weak sales outlook prompted firms to lower their prices
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