“Iron and Rye”



Fishing Boat 1871 Jean-François Millet (French, 1814–1875), Oil on Canvas



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In European Equity Markets stocks finished Friday’s session sharply lower after President Donald Trump announced upcoming tariffs on steel and aluminum, raising fears of a potential trade war. The pan-European STOXX 600 extended losses throughout the session, closing down 2.06 percent. On the week, the STOXX 600 fell 3.68 percent. All sectors closed sharply lower with many finishing the session down over 2 percent, including basic resources, banks, autos and industrials.


In Currency Markets the Japanese yen jumped to a 16-month high against the dollar as investors sold the greenback as prospects of a trade war gripped currency markets after U.S. President Donald Trump announced hefty new tariffs on steel and aluminum imports.


Bank of Japan governor Haruhiko Kuroda also surprised currency markets by saying the central bank would consider an exit from its ultra-easy monetary policy if it met its inflation target in the year ending in March 2020, helping the yen higher against the euro and sterling. The greenback was nearly 0.5 percent lower at 105.75 yen after touching 105.70 earlier, its lowest since Feb. 16. Against the euro and sterling, the yen was 0.3 and 0.5 percent higher respectively.
In Commodities Markets oil prices were set to post their first weekly fall in three weeks on Friday after news of U.S. plans to impose tariffs on steel and aluminum hit global equity markets and as U.S. crude inventories climbed. President Donald Trump said he would impose hefty tariffs to protect U.S. producers, risking retaliation from major trade partners such as China, Europe and Canada. Brent crude fell by 32 cents to $63.51 a barrel, while U.S. crude was down 30 cents at $60.69. Both contracts are set for weekly declines. Adding to pressure, U.S. crude stocks rose faster than expected last week, increasing by 3 million barrels compared with predictions for a gain of 2.1 million barrels.




In US Equity Markets the Dow fell more than 1 percent for a fourth straight day on Friday on mounting fears of a global trade war following President Donald Trump’s promise to impose import tariffs on steel and aluminum. All but eight of the 70 members of the broader S&P industrial index were lower, reflecting fears that the costs of their raw materials will rise along with barriers to their trade outside of the United States. The S&P 500 fell 0.63 percent to 2,660.9 and the Nasdaq Composite declined 0.49 percent to 7,145.05.
J.C. Penney Co Inc shares fell 8.7 percent after the department store chain missed same store sales estimates.


S&P 500


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In Bond Markets Germany’s 10-year government bond yield hit a five-week low on Friday, as an Italian election and a milestone in German coalition politics this Sunday together with worries about a global trade war boosted demand for safe-haven debt. Most euro zone bond yields were down 0-2 basis points. Germany’s benchmark 10-year Bund yield fell to as low as 0.606 percent, its lowest level since late January, before inching up to 0.639 percent. It has fallen almost 20 bps from more than two-year highs hit last month and is set for a fourth straight week of falls. Italy’s 10-year bond yield fell three bps to as low as 1.983 percent, its lowest level in 3 weeks.


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  • United States Michigan Consumer Sentiment Final was reported at 99.7 in Feb from 95.7 in the previous period. It was expected at 99.5. 
  • United States Michigan 5-Year Inflation-Expectations reported in February unchanged at 2.5% from the previous period 2.5%.
  • United States Michigan Inflation Expectations reported in February 2.7% vs. previous period 2.7% 
  • United States Michigan Current Conditions was reported at 114.9 in February vs. 115.1 in the previous period.
  • US Baker Hughes Rig Count Mar-2: 981 (prev 978) – Rotary Gas Rigs Mar-2: 181 (prev 179) – Rotary Oil Rigs Mar-2: 800 (prev 799)


REFLATION EXPOSURES – We’re in a global equity volatility patch right now, but let’s unpack the consensus view on reflation exposures. Energy sector equities have been a dog (XLE underperformed SPY by ~720bps in February). However, the top-down theme remains that #reflation’s rollover is non-consensus. From a volatility expectations standpoint, the set-up currently is exactly the opposite of 2017: The tickers where longer-term implied volatility registers the lowest percentile readings are commodity-linked, and the upside divergences in long-term implied volatility are filled with equity-tickers.


INFLATION – At 2.80% this morning, 10YR yields are now -15bps off of recent highs and flirting with a break below the low-end of the @Hedgeye risk range. Breakevens (i.e. inflation expectations) are flashing lower highs as well as core PCE inflation continues to underwhelm domestically and price growth in the Eurozone is beginning to flag – Eurozone PPI decelerated a full -70bps in January, marking the slowest pace of wholesale price growth in over a year. As a reminder, U.S. CPI will face its hardest reflationary comp in February.

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ISM – The manufacturing steamroll continued in February with ISM hitting a new 165-month high and most of the internals flashing similar strength.  With New Orders and Capex Plans also holding at cycle highs, near-term production activity should remain strong.












Federal Reserve

  • Daily Effective Fed Funds Rate: 1.42%, Volume: $115B

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Mar 02, 2018: New York Fed Staff Nowcast
  • The New York Fed Staff Nowcast for 2018:Q1 stands at 3.0%.
  • News from this week’s data releases decreased the nowcast by 0.1 percentage point.
  • Negative surprises from new home sales and personal consumption expenditures were partially offset by positive surprises from the ISM manufacturing survey.

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Federal Reserve Bank of New York 

-R.W.N. II

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