Month-in-Review March 2017

March 2017

The latest FOMC policy adjustment on March 15th was widely anticipated, priced into the market nearly 100%. The dovish tone, however, accompanying the third-round rate increase was not expected, undermining more aggressive forecasts for three or more additional rate adjustments in the remaining three-quarters of the year. Rising inflation offered Fed officials a window of opportunity to make a move near-term, however, many officials remain cautious that the recent rise in prices will prove temporary. Furthermore, amid growing uncertainty on the fiscal policy side, many Committee members see a rise in the possible downside risks to the economy, mitigating any sense of urgency to press on with additional policy adjustments, let alone at an accelerated pace. After all, optimism appears to be driving the equity market but underlying economic fundamentals remain moderate at best, with growth in the first-quarter shaping up to fall short of 1%.            

Market Activity and Commodities

·      Equities – Equities ended the month of March lower following a major setback to the Trump agenda; Republican leaders pulled a bill aimed to overhaul the U.S. health care system after it became clear the party would fail to generate the needed 215 votes to pass in the House. The S&P 500 ended the month 1.4% lower, at 2,363. The Dow began the month at a high of 21,116 and ended 2.1% lower at 20,663, extending its longest losing streak since 2011.

·      Treasuries – Treasury yields were volatile throughout the month of March. The 10-yr treasury yield ended 6bps lower at 2.39% after reaching a high of 2.63% on the 13th. The 2-yr treasury yield, meanwhile, fell 3bps ending the month at 1.26%.

·      Oil      

o  (Mar 8) – OPEC and non-OPEC producing countries reiterated their pledge to uphold the terms of the production-cut agreement reached on November 30, 2016. Oil prices traded 6% higher since the agreement, near $53 a barrel. At a news conference at CERAWeek in Houston, both the Russian and Saudi Arabian oil ministers told reporters the efforts to stabilize the market were "going well."

o  (Mar 9) – Crude inventories surged by 8.2 million barrels, surpassing expectations of a 2 million barrel build. Oil prices traded down 0.44% at $50.06 a barrel.

o  (Mar 13) – Oil prices dropped below $48 a barrel as the U.S. oil rig count rose by 8 to 617, the highest level since September 2015. Crude traded down 0.21% at $48.39 a barrel.

o  (Mar 15) – According to the International Energy Agency, oil demand is expected to drop from 1.6m bpd last year to 1.4m bpd in 2017. API data, meanwhile, showed an unexpected drawdown in U.S. crude stockpiles. Crude prices traded up 1.76% at $48.56 a barrel.

o  (Mar 21) – Crude prices rose minimally amid whispers that production cuts may be extended beyond June. Of course, such a move would require cooperation from OPEC and non-OPEC members, like Russia, to participate and comply. Crude traded up 0.10% at $48.27 a barrel.

National Growth and Outlook

·      NFIB Small Business Optimism (Mar 14) – The NFIB Small Business Optimism Index fell slightly from 105.9 to 105.3 in February, a three-month low.

·      Leading Index (Mar 17) – The Leading Index rose 0.6% in February following a similar increase the month prior.

·      Chicago Fed National Activity Index (Mar 20) – The Chicago Fed National Activity Index rose from -0.02 to 0.34 in February, a two-month high. The Chicago Fed National Index draws on 85 economic indicators; a reading below zero indicates below-trend-growth in the national economy and a sign of easing pressures on future inflation. In February, 55 of the 85 monthly individual indicators made positive contributions, while 30 made negative contributions.

·      GDP (Mar 30) – Fourth-quarter GDP rose from 1.9% to 2.1% in the final, third-round revision, slightly more than the 2.0% reading the market anticipated, according to Bloomberg. In the details, personal consumption was revised up from 3.0% to 3.5% in the third-round report, thanks to stronger spending on goods and services; goods consumption was revised up from 5.7% to 6.0% in the third-round revision and service spending was revised higher from 1.8% to 2.4%. Gross private investment was revised slightly higher from 9.2% to 9.4% in the third-round Q4 GDP report, reflecting a stronger inventory rebuilding than originally reported in the second-round report. Inventories rose $49.6b in Q4, revised up from a $46.2b gain and following a $7.1b rise in Q3. Inventories contributed a full percentage point to topline GDP at the end of 2016. Fixed investment, on the other hand, was revised down from 3.2% to 2.9% in the third-round Q4 GDP report, thanks to still-modest equipment spending and a downward revision to spending on intellectual property; equipment spending was unrevised at 1.9%, and intellectual property was revised down from 4.5% to 1.3%. Trade was little changed in the third-round Q4 GDP report with exports slightly more negative (-4.5%) and imports slightly more positive (9.0%) than originally reported in the previous release. Government spending was revised down from 1.2% to 0.4%, a two-quarter low. The majority of the revision was at the state and local level where spending was reduced by half, revised down from 2.6% to 1.3% at the end of 2016.

Employment

·      Jobless Claims

o  (Mar 2) – Initial jobless claims fell 19k from 242k to 223k in the week ending February 25, the lowest level in almost forty-four years. The four-week average fell from 241k to 234k.

o  (Mar 9) – Initial jobless claims rose 20k from 223k to 243k in the week ending March 4. The four-week average rose from 234k to 237k.

o  (Mar 16) – Initial jobless claims fell 2k from 243k to 241k in the week ending March 11. The four-week average remained unchanged at 237k.

o  (Mar 23) – Initial jobless claims rose 15k from 243k to 258k in the week ending March 18. The four-week average increased from 239k to 240k.

·       Nonfarm Payrolls (Mar 10) – Nonfarm payrolls rose 235k in February, surpassing expectations and kicking off the first employment report under the Trump administration with a bang. January payrolls were revised slightly higher from 227k to 238k, pulling the six-month average up minimally from 192k to 194k, as well as the trailing twelve-month average pace of hiring up from 195k to 196k. The overall change in nonfarm payrolls (February data + net revisions) was 244k. Goods-producing payrolls jumped 95k in the second month of the new year, thanks to a 58k gain in construction payrolls, the highest gain since February 2006 – no doubt buoyed by warmer than expected weather across much of the U.S. – and to a lesser extent, a 28k rise in manufacturing payrolls, a thirteen-month high. Service producing payrolls rose 132k in February, down from 167k added in January.

·      Participation Rate (Mar 10) – The civilian labor force increased by nearly 350k in February. As a result, the participation rate gained one-tenth of a percentage point to 63.0% in February, still hovering, however, near a four-decade low.

·      Unemployment Rate (Mar 10) – Household employment rose by 450k in February more than offsetting a near 350k increase in the labor force, and resulting in a one-tenth decline in the civilian unemployment rate from 4.8% to 4.7%. A two-month low, unemployment, nevertheless, remains at the lower bound of the Fed’s full-employment range.

·      Average Hourly Earnings (Mar 10) – Average hourly earnings increased 0.2% in February, pulling the annual pace up from 2.6% to 2.8%.

·      Average Weekly Hours (Mar 10) – The workweek was unchanged at 34.4 hours in February, the third consecutive month of stability at this level.

·      JOLTS (Mar 16) – The number of job openings increased 1.6% in January from 5,539k, revised up from 5,501k, to 5,626k. Continuing the broad upward trend, job openings have dropped noticeably below the recent peak of 5,973k in July 2016.

Consumer Activity and Confidence

·      Vehicle Sales (Mar 1) – Total vehicle sales fell 0.1% in February from 17.48m to a 17.47m unit pace. Year-over-year, vehicle sales fell 0.7%, the second consecutive month of negative annual growth.

·      Consumer Credit (Mar 7) – Consumer credit increased by $8.79b in January following a $14.16b increase the month prior.

·      Retail Sales (Mar 15) – Retail sales rose just 0.1% in February, as expected, according to Bloomberg, and a six-month low. Year-over-year, however, headline sales rose 5.7% in February, up from a previous report of 5.6% in January. Auto sales fell 0.2% in February. Excluding autos, retail sales rose 0.2% in February and 5.7% over the past 12 months. Gasoline station sales fell 0.6% in February. Excluding gasoline, sales rose 0.1% in February and 4.6% over the past 12 months. Excluding autos and gasoline, core sales rose 0.2% in February. In the details, furniture sales, and health and personal care sales both rose 0.7% in February, and building materials sales jumped 1.8% following a 1.2% rise the month prior. Non-store retailers sales gained 1.2% in February. Electronics sales, on the other hand, fell 2.8%, clothing sales dropped 0.5%, sporting goods sales decreased 0.4%, and general merchandise sales declined 0.2% in February, thanks to a 1.1% drop in department store sales. Miscellaneous sales fell 0.8%, and eating and drinking sales fell 0.1% in February following a 1.7% increase the month prior.

·      University of Michigan Consumer Sentiment

o  (Mar 17) – The University of Michigan Consumer Sentiment Index rose from 96.3 to 97.6 in the preliminary March report. In the details, consumers’ assessment of current conditions rose from 111.5 to 114.5, and consumers’ expectations rose from 86.5 to 86.7, a two-month high. 

o  (Mar 31) – The University of Michigan Consumer Sentiment Index fell from 97.6 to 96.9 in the final March print. In the details, consumers’ assessment of current conditions declined from 114.5 to 113.2, and consumers’ expectations decreased from 86.7 to 86.5.

o  Consumer Confidence (Mar 28) – The Consumer Confidence Index rose from 114.8 to 125.6 in March, more than expected, according to Bloomberg, and the highest level since December 2000. The three-month average gained from 113.7 to 117.8 in March, the highest since June 2001. In the details, expectations rose from 103.9 to 113.8 in March, and present situation improved from 134.4 to 143.1, the highest since June 2001.

Inflation

·      PPI (Mar 14) – The PPI rose 0.3% in February, more than expected, according to Bloomberg, but half the monthly gain reported January. Year-over-year, headline producer inflation rose 2.2%, up from a 1.6% pace reported in January, and the highest since March 2012. Food prices rose 0.3% in February and energy prices rose 0.6%. Excluding food and energy costs, the core PPI rose 0.3% in February after a 0.4% rise the month prior. Over the past 12 months, core prices rose 1.5%, a two-month high. In the details, goods prices rose 0.3% in February, thanks to higher energy costs. Excluding food and energy costs, goods prices rose only 0.1% in February, a four-month low. Service costs rose 0.4% in February, thanks to a 0.4% rise in trade costs, and to a lesser extent, a 0.3% increase in warehousing prices. Other service costs gained 0.5% in February, the most in seven months.

·      CPI (Mar 15) – The CPI rose 0.1% in February and 2.7% over the past 12 months, as expected, according to Bloomberg. Excluding food and energy costs, the core CPI increased 0.2% in February and 2.2% year-over-year, down one-tenth from the annual pace reported in January. In the details, housing costs gained 0.3% in February, thanks to a 0.3% rise on the OER and a 0.7% gain in fuels and utilities costs. Food and beverage costs rose 0.2% in February, medical care prices rose 0.1%, and recreation costs gained 0.6%. Apparel costs, furthermore, rose 0.6% in February, the second consecutive month of gains, and other goods and services prices rose 0.1%, thanks to a 0.4% gain in tobacco costs. Education costs, on the other side, fell 0.2% in February, thanks to a 1.0% drop in the cost of personal computers. Transportation costs fell 0.5%, energy prices dropped 1.0%, and commodities costs declined 0.2% in February.

·      PCE (Mar 31) – The PCE rose 0.1% in February, in line with expectations, according to Bloomberg, and following a 0.4% rise the month prior. Year-over-year, the PCE rose 2.1%, the most since March 2012 and the first reading above 2% in more than five years. Excluding food and energy costs, the core PCE increased 0.2% in February, as expected, according to Bloomberg, holding the year-over-year pace steady at 1.8%.

Manufacturing and Production Activity

·      ISM Manufacturing (Mar 1) – The ISM Manufacturing Index rose from 56.0 to 57.7 in February, surpassing expectations, according to Bloomberg, and reaching the highest level since August 2014. In the details, production and new orders both reached new, multi-year highs at 62.9 and 65.1, respectively. Exports and imports, furthermore, continued to improve: exports rose from 54.5 to 55.0, and imports increased from 50.0 to 54.0, the highest since May 2015. Employment, meanwhile, fell slightly to 54.2, still, however, in solid territory.

·      ISM Non-Manufacturing (Mar 3) – The ISM Non-Manufacturing Index rose slightly from 56.5 to 57.6 in February, a sixteen-month high. The six-month average rose from of 55.4 to 56.4, still well-below the more robust pace of 57.5 from mid-2014 to 2015. In the details, employment rose from 54.7 to 55.2 in February, backlog of orders increased from 50.0 to 54.0, and new export orders improved from 48.0 to 57.0. Business activity rose from 60.3 to 63.6 in February, marking the fourth above 60 reading in the past six months. On the other hand, imports decreased from 54.0 to 51.0 in February, a two-month low, and prices paid fell from 59.0 to 57.7.

·      Factory Orders (Mar 3) – Factory orders rose 1.2% in January following a 1.3% rise the month prior.

·      Empire Manufacturing (Mar 15) – The Empire Manufacturing Index fell from 18.7 to 16.4 in March, however, stronger than the 15.0 reading expected, according to Bloomberg. In the details, new orders jumped from 13.5 to 21.3 in March, the highest reading since April 2010. Additionally, employment improved from 2.0 to 8.8, the second positive reading in eight months. 

·      Philly Fed Business Outlook Survey (Mar 16) – The Philly Fed Index fell from 43.3 to a reading of 32.8 in March, a two-month low. In the details, new orders rose to 38.6 in March, the highest since December 1987 and following a reading of 38.0 the month prior. Shipments climbed to 32.9 in March following a reading of 28.6 in February, the average workweek improved from 13.6 to 18.5, and employment gained to 17.5, the highest since November 2014.

·      Industrial Production (Mar 17) – Industrial Production was flat in February following a 0.1% decrease the month prior.

·      Capacity Utilization (Mar 17) – Capacity Utilization decreased slightly from 75.5% to 75.4% in February, a three-month low.

·      Kansas City Fed Manufacturing (Mar 23) – The Kansas City Fed Index rose from 14 to a reading of 20 in March, the highest since March 2011.

·      Durable Goods (Mar 24) – Durable goods orders rose 1.7% in February, beating expectations, according to Bloomberg. Year-over-year, headline orders rose 1.5%, a one-month low. Transportation orders rose 4.3% in February. Excluding transportation, orders rose 0.4% in February and 1.0% over the past 12 months following a 4.3% increase in January.

·      Capital Goods (Mar 24) – Capital goods orders rose 2.6% in February after a 5.2% rise at the start of the year. Non-defense capital goods rose 4.1% in the second month of the new year, however, excluding aircraft and defense, capital goods orders fell 0.1% in February, the first month of decline in five. A proxy for business investment, capital goods orders excluding aircraft and defense, rose just 0.2% over the past 12 months following a 2.6% annual pace reported in January, eroding optimism for a much-improved profile of corporate investment in the new year relative to long-standing weakness in 2015 and 2016.

·      Dallas Fed Manufacturing (Mar 27) – The Dallas Fed Manufacturing Outlook Index fell from 24.5 to 16.9 in March, a four-month low, and weaker than expected, according to Bloomberg.

·      Richmond Fed Manufacturing (Mar 28) – The Richmond Fed Index rose from 17 to a reading of 22 in February, surpassing expectations, according to Bloomberg, and the highest reading since March 2004.

·      Chicago PMI (Mar 31) – The Chicago PMI improved from 57.4 to 57.7 in March, the highest since January 2015. In the details, four out of the five components improved in the third month of the year: new orders, production, supplier deliveries and prices paid. Employment, on the other hand, posted a decline in March.

Housing Market Activity

·      Construction Spending (Mar 1) – Construction spending fell 0.1% in January after a 0.1% rise in December. Construction spending averaged 0.3% during the last six months.

·      NAHB Housing Market Index (Mar 15) – The NAHB Housing Market Index rose from 65 to 71 in March, the highest since June 2005.

·      Housing Starts (Mar 16) – Housing starts rose 3.0% in February following a 1.9% decrease the month prior, pulling the annual pace up from 1,251k to 1,288k, a four-month high. The increase in February was largely the result of single family starts, up 6.5%. Multi-family starts, meanwhile, decreased 3.7% in February following a 7.3% decline the month prior. Year-over-year, however, housing starts rose 6.2% in February led by a 13.0% increase in multi-family starts. Single family starts rose 3.2% over the past 12 months.

·      Building Permits (Mar 16) – Building permits fell 6.2% in February from 1,293k to a 1,213k unit pace. Year-over-year, permits increased 4.4%. The decline in February was the result of a dip in multi-family permits, down 21.6% in February, and nearly offsetting the 22.1% rise the month prior. Multi-family permits declined 11.2% year-over-year. Single family permits, on the other hand, rose 3.1% in February and increased 13.5% over the past 12 months.

·      Existing Home Sales (Mar 22) – Existing home sales fell 3.7% in February, pulling the annual pace down from 5.69m to 5.48m, a five-month low. The drop in home sales in the second month of the year was driven by weak multi-family sales down 9.2%, and to a lesser extent, single family sales, off 3.0%. Year-over-year, existing home sales rose 5.4% with a 1.7% and 5.8% rise in multi and single family sales, respectively. The month’s supply of homes for sale rose to 3.8 months in February, a three-month high. From a price standpoint, the median cost of a previously owned home rose 0.5% to $228.4k in the second month of 2017. Year-over-year, existing home prices rose 7.7%.

·      New Home Sales (Mar 23) – New home sales rose 6.1% in February, pulling the annual pace of sales up from 558k to a 592k, a seven-month high. The months’ supply of new home sales fell from 5.6 to 5.4 months in February, a three-month low. From a price standpoint, the median cost of a newly constructed home fell 3.9% in February and declined 4.9% over the past 12 months.

·      S&P/CS 20 City Index (Mar 28) – The S&P Case-Shiller 20 City Home Price Index rose 0.86% in January and 5.73% year-over-year, the highest since July 2014.

·      Pending Home Sales (Mar 29) – Pending home sales rose 5.5% in February, significantly more than the 2.5% increase expected, according to Bloomberg, and following a 2.8% decline the month prior. Year-over-year, however, pending home sales fell 2.4% in February, a seven-month low.

Trade and Currency

·      Pound

o  (Mar 7) – The sterling dropped below $1.22 for the first time since January 17 on concerns an upcoming vote in the House of Lords could cause delays in the Brexit, preventing the U.K. government from triggering Article 50.

o  (Mar 16) – The pound rose slightly following the BOE's decision to leave the key lending rate unchanged at 0.25%. The pound rose 0.55% and traded at $1.24 against the U.S. dollar.

o  (Mar 29) – The pound traded down 0.28% at $1.24 against the U.S. dollar after Prime Minister Theresa May invoked Article 50, starting the two-year negotiation process between the EU and U.K.

·      Trade (Mar 7) – The U.S. trade balance widened from -$44.3b to -$48.5b in January, the widest since March 2012. President Trump’s emphasis on narrowing the trade gap has put an increased focus on the Commerce Department's monthly report as of late.

·      Import Prices (Mar 9) – Import prices rose 0.2% in February and 4.6% year-over-year, slightly more than expected, according to Bloomberg.

Monetary Policy, Reports, and Commentary

·      Atlanta Fed GDPNow Forecast

o  (Mar 17) – According to the Atlanta Fed’s GDPNow model, following the release of the residential construction, retail trade and employment reports, U.S. GDP growth in the first-quarter of 2017 is expected to be just 0.9%.

·      Fed Speak

o  (Mar 2) – Federal Reserve Governor Lael Brainard painted a modestly positive picture of the U.S. economy and suggested growing support for an additional interest rate hike "soon." In a speech at Harvard University, Brainard said, “assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path." “We are closing in on full employment," she went on, "inflation is moving gradually toward our target, foreign growth is on more solid footing and risks to the outlook are as close to balanced as they have been in some time.”

o  (Mar 29) – Federal Reserve Vice Chairman Stanley Fischer told CNBC that two additional rate hikes this year “seems about right.” Fischer’s forecast for an additional 50bps, taking the Fed Funds rate to 1.5% by year-end, appeared in line with the Committee's latest round forecast for modest, additional policy adjustments in 2017.

·      FOMC Rate Decision (March 15) – As expected, the Fed opted to raise rates from 0.75% to 1.00% at its March 15th policy meeting. In the March FOMC statement, the Fed acknowledged the continued improvement in the labor market and the “somewhat” firmer activity in terms of business investment. Inflation, furthermore, the Fed noted, continued to move “close to the Committee’s 2% longer-run objective,” however, the core was little changed and continued to run “below” the Fed’s target level. Additionally, the Committee noted that it will monitor inflation and inflation expectations “carefully.” The vote was nearly unanimous save for the President of the Minneapolis Federal Reserve Neel Kashkari who preferred to maintain the existing target range for the Federal funds rate. According to the Summary of Economic Projections, the Fed continued to anticipate a long-run growth rate of 1.8%. Inflation, meanwhile, is anticipated to meet and maintain a near 2% level in 2018 or beyond, as previously forecasted in the December version of the report. And finally, the Committee continued to anticipate a slow and “gradual” rise in the Fed funds rate to a longer-term level of 3%. The majority of officials anticipated two additional rate hikes in 2017, with three officials anticipating one or no further rate adjustments this year. Five members, meanwhile, anticipated three or more rate hikes in the remaining nine months of the year.

Domestic News and Activity 

·      Politics and the Trump Administration

o  (Mar 1) – President Trump addressed a joint session of Congress and the nation, outlining his expectations for fiscal policy and the focus of the new administration over the coming year and beyond. The President presented an aggressive agenda focused on the very issues he campaigned on including tax reform, regulation reduction, immigration reform, and infrastructure spending. Despite many hailing Trump’s comments as his one, if not best speech given since taking office, he offered little in the way of specific details.

o  (Mar 2) – Top Democrats called for Jeff Sessions to resign after the Department of Justice confirmed the newly appointed Attorney General spoke to the Russian ambassador more than once during Trump’s 2016 campaign. Prior to his confirmation hearings, Sessions denied having contact, although a spokesperson said the conversations were part of his work as a Senator on the Armed Services Committee, a distinction he had drawn when asked if he had contact acting as a Trump supporter.

o  (Mar 3) – Attorney General Jeff Sessions recused himself from investigations related to President Trump's election campaign and inappropriate contacts with Russia. In a press conference, Sessions told reporters, "In retrospect, I should have slowed down and said I did meet with one official a couple of times." Nevertheless, he maintained that his answer was "honest and correct," as he met with Russian officials in the capacity of a Congressman, not as a Trump supporter.

o   (Mar 7) – The GOP unveiled its much-anticipated Obamacare replacement bill. The highlights included: ending health insurance mandates, creating a new tax credit tied to a person's age and income for those who are unable to acquire employer-issued insurance and a restructuring of the country's Medicaid program. No estimate was given on cost or how many people the plan would cover, which prompted criticism from both sides of the aisle.

o  (Mar 7) – President Trump signed a revised travel ban. The second-round executive order banned citizens from six Muslim-majority nations from traveling to the U.S., excluding Iraq which was previously included in the first attempt. The new order took effect on March 16, and only applied to new visa applicants.

o  (Mar 9) – Hawaii filled a suit against the President in order to stop the revised travel ban. Hawaii previously sued over the initial executive order, but the lawsuit was put on hold while other cases played out across the U.S.

o  (Mar 14) – President Trump welcomed Deputy Crown Prince Mohammed bin Salman to the White House. According to an adviser to the Prince, the "meeting put things on the right track... across all political, military, security and economic fields." The adviser also said that Saudi Arabia doesn't view Trump's travel ban as aimed against Muslim countries or Islam.

o  (Mar 14) – According the Congressional Budget Office, the Republican plan to replace the Affordable Care Act would leave 14m Americans without health insurance by 2018 and as many as 24m without coverage by 2026. The CBO’s analysis found that while the plan would eventually lower average premiums relative to Obamacare – by 2020 after a two-year spike – the loss of coverage may discourage support from at least some lawmakers who question whether the cost reduction is justified with a reduction in coverage.

o  (Mar 15) – The federal government’s capacity to borrow beyond its current debt level of $19.8 trillion expired, setting up for an intense political battle in Congress. According to Treasury Secretary Steve Mnuchin, Congress should raise the ceiling "at the first opportunity," with Senate Majority Leader Mitch McConnell agreeing that Congress will "obviously" increase the limit.

o  (Mar 16) – The Trump administration unveiled its fiscal 2018 budget blueprint highlighting many of the promises made along the campaign trail. Overall, the plan aims to boost spending for the Departments of Defense, Homeland Security and Veteran’s Affairs, while making deep cuts in domestic programs, environmental protection and foreign aid. According to reports, Trump also wants Congress to put a down payment on a border wall, although an infrastructure plan is still a work in progress.

o  (Mar 16) – The Trump administration’s immigration policy faced pushback after federal judges in Hawaii and Maryland halted the new travel ban, citing its "illegal" intent to keep Muslims out of the country.

o  (Mar 17) – According to the Secretary of State Rex Tillerson, "all options are on the table" to deal with North Korea. "Certainly we do not want for things to get to a military conflict," he continued, but "if they elevate the threat of their weapons program to a level that we believe requires action... then that would be met with an appropriate response."

o  (Mar 20) – According to Secretary of State Rex Tillerson, the U.S. and China will work together to get nuclear-armed North Korea to take "a different course."

o  (Mar 20) – After President Trump met with German Chancellor Angela Merkel, Trump reiterated his frustration with the uneven funding for NATO. "...Germany owes vast sums of money to NATO & the United States must be paid more for the powerful, and very expensive, defense it provides to Germany!" According to the latest figures, only five of the twenty-eight allies met the required 2% of GDP defense expenditure benchmark in 2016. The five include the U.S., Great Britain, Greece, Estonia, and Poland.

o  (Mar 20) – FBI Director James Comey testified in front of the House Intelligence Committee. In his testimony, Comey confirmed that the bureau was indeed investigating allegations of Russian interference in November's presidential election.

o  (Mar 21) – The Trump administration banned the use of laptops and tablets in the cabins of U.S.-bound planes from 10 Middle Eastern airports, including Dubai and Istanbul. According to the AP, Royal Jordanian and Saudi Arabian Airlines said they would comply.

o  (Mar 27) – The Trump administration faced a major political setback when Republican leaders pulled a bill to overhaul the U.S. health care system. The President said he will move on to "tax reform," letting Obamacare unfold, at least for the time being, but the White House faces larger criticism regarding Trump's ability to implement his economic agenda and usher in an era of pro-growth policies.

o  (Mar 28) – Democrats called for Devin Nunes, the House Intelligence Chair, to withdraw from the Russia probe. Nunes was reportedly on the White House grounds when he was shown intercepts that bolstered the administration’s claims of wiretapping, but evidence has yet to be presented to the Committee.

o  (Mar 31) – Former National Security Advisor Mike Flynn agreed to testify about the Trump campaign's possible ties to Russia. However, the former advisor said he would do so only with the stipulation that he would be immune from prosecution. According to his lawyer, "General Flynn certainly has a story to tell, and he very much wants to tell it."

International News and Activity 

·      European Union

o  (Mar 2) – Eurozone inflation "soared" to 2% in February, surpassing the central bank's target for the first time in four years. The recent rise in prices, however, appeared unlikely to divert policymakers from their current course, as ECB decision makers stressed they are not yet convinced the current rate will be sustained when the rise in energy prices subsides.

o  (Mar 6) – The Frankfurt-based Sentix research group's Eurozone index rose from 17.4 to a reading of 20.7 in March, the highest level in almost a decade. Investor sentiment improved more-than-expected, with Germany's DAX nearing its record high of 12,374 set in April 2015.

o  (Mar 6) – Greek GDP was revised down from -0.4% to a larger loss of -1.2% in Q4 of 2016, according to Bloomberg, marking the worst quarterly performance for the debt-stricken nation since the peak of its financial crisis in the summer of 2015. Despite rounds of reform, the struggling country has yet to regain its financial footing or jumpstart the domestic economy, still heavily reliant on international support for funds.

o  (Mar 9) – The ECB kept rates and the central bank's bond-buying program unchanged in its latest policy announcement amid increasing uncertainty ahead of elections in France and the Netherlands. The ECB held its key short-term interest rate benchmark at zero, and maintained its rate on deposits from commercial banks at -0.4%. The central bank also reaffirmed the new pace of asset purchases would be scaled back from 80 billion euros ($85.3 billion) a month to 60 billion euros from April onward.

o  (Mar 16) – The Swiss National Bank left its deposit rate unchanged at -0.75%, a rate the bank has maintained since January 2015. Officials from the SNB cited global economic uncertainty and risk as a reason to maintain rates deep in negative territory.

o  (Mar 16) – The Dutch election results buoyed European assets as voters rejected Geert Wilders's populist, anti-EU platform. In what was called one of the most closely watched Dutch elections, Prime Minister Mark Rutte's People's Party for Freedom and Democracy took 33 of the 150 parliamentary seats, 13 more than Geert Wilders's far-right Party for Freedom. According to reports, Rutte said his victory had stopped the "wrong kind of populism" in its tracks following "Brexit and the American elections."

o  (Mar 20) – Martin Schulz was elected leader of Germany's Social Democratic Party. He will act as the primary opposition to Chancellor Angela Merkel in the general elections scheduled to take place on September 24th. In his acceptance speech, Shultz sent a mixed message of traditional left-wing issues along with clear attacks on populism.

o  (Mar 21) – French centrist candidate Emmanuel Macron was judged the winner of the presidential debate in Paris against Marine Le Pen.

o  (Mar 23) – The ECB took another step towards ending extraordinary stimulus, offering the last round of targeted Longer-Term Refinancing Operations (LTRO). The final round of four-year loans – offered at an interest rate that starts at zero and could go lower – totaled over $250 billion. According to Bloomberg, the central bank's 12 targeted longer-term refinancing operations have delivered nearly $900 billion to lenders. This is the second step the ECB has taken to reduce support for the market after announcing a reduction in QE purchases in February from €80bn to €60bn beginning in April.

o  (Mar 26) –In the local election in Germany’s Saarland state, German Chancellor Angela Merkel's CDU Party polled almost 41% of the votes, while the resurgent left SPD party received 30%.

o  (Mar 27) – French presidential candidate Marine Le Pen spoke at a rally, and reiterated her commitment to redirect the country away from the EU. Le Pen said, "The time has come to defeat globalists,” stating "the EU will die because the people do not want it anymore." Later, speaking to Le Parisien, Le Pen clarified her intentions and said such a departure, however, "must be done in a rational, well-prepared way." "I don't want chaos... the euro would be the last step because I want to wait for the outcome of elections in Germany." Nevertheless, according to the latest polls as reported by Bloomberg, Emmanuel Macron edged further ahead of Marine Le Pen in France's presidential race.

o  (Mar31) – Hitting back at President Trump for supporting the U.K.’s withdraw from the EU, European Commission President Jean-Claude said he would support American states that wanted to secede from the Union. "If he goes on like that, I'm going to promote the independence of Ohio and the exit of Texas," he told delegates from his pan-EU Christian Democrat group in Malta.

o  (Mar 31) – Eurozone inflation rose 1.5% in March, down from a 2.0% rise the month prior and ending a near year-long rise in the region's annual rate of inflation. The decline could lessen calls from Germany to end the ECB's stimulus measures, and rather, strengthen the central bank's opinion that the rise in inflation was "driven by transient factors."

·      U.K.

o  (Mar 3) – Prime Minister Theresa May warned that Scottish independence would "wrench Scotland out of its biggest market." Theresa May insisted that "logic and facts" were on the side of the U.K., and declared that "we are four nations, but at heart one people."

o  (Mar 9) – Scotland’s First Minister Nicola Sturgeon said autumn next year would be the "common sense" time for a second Scottish independence referendum. No final decision was made, but those close to the situation suggested Sturgeon would soon make an announcement about the possibility of a second-round vote.

o  (Mar 14) – According to Brexit minister David Davis, "We will trigger Article 50 by the end of this month as planned and deliver an outcome that works in the interests of the whole of the U.K." Davis’s comments came after the U.K. Parliament backed the Brexit bill without amendments, granting Prime Minister Theresa May permission to begin two years of talks to formally exit the EU.

o  (Mar 15) – According to Scotland’s Minister Nicola Sturgeon, "There is no option for Scotland to remain in the EU as the UK leaves or for Scotland to inherit the UK's place." Sturgeon told the Herald Report a referendum should be held in late 2018 or early 2019.

o  (Mar 16) – The Bank of England left rates at a record low of 0.25% at its latest policy meeting and made no change to its asset purchases program set at ￡435bn ($547.6bn). While inflation has been on the rise in the region, monetary policy officials remained concerned about the risks and uncertainty surrounding Brexit.

o  (Mar 17) – According to Scottish First Minister Alex Salmond, Scotland could abandon a currency union with the rest of the U.K. if it gained independence. Speaking to the FT, Salmond ruled out joining the euro, but suggested that Scotland could introduce a new currency, either freely floated or pegged to the pound.

o  (Mar 20) – Scotland’s First Minister Nicola Sturgeon reportedly softened her stance on the potential timing of a second independence referendum after Prime Minister Theresa May rejected a call to hold a vote before Britain leaves the EU. Sturgeon had previously called for a referendum to be held as early as fall 2018, but is now prepared to hold a vote later as long as it's "not too long after Brexit."

o  (Mar 20) – Prime Minister Theresa May announced that two years of Brexit discussions will be triggered on March 29.

o  (Mar 21) – U.K. inflation rose at an annual pace of 2.3% in February, bypassing the central bank's target of 2% for the first time since late 2013. Going forward, some analysts expect inflation in the region to continue to escalate amid the Brexit and rising energy costs.

o  (Mar 23) – A horrendous terror attack in London left 4 dead and another 29 injured. Police reports said the London attack was inspired by "Islamist-related terrorism." Additionally, according to comments from Prime Minister Theresa May, the British-born attacker was on the radar a few years ago, but wasn't part of the "current intelligence picture.” Police arrested eight people in connection with the attack, raiding homes in Birmingham and London.

o  (Mar 29) – British Prime Minister Theresa May invoked Article 50 of the Lisbon Treaty with a hand-delivered letter to EU President Donald Tusk. The two-year negotiation process between the U.K. and EU will begin over a range of issues including trade, immigration, and of course, the future of Britain's $2.6tr economy. There remains some rocky territory to iron out: according to the FT, Theresa May won't immediately block the rights of the region's citizens working in the U.K., but Germany continues to push for Britain to pay a bill of up to 60 billion euros ($65 billion).

o  (Mar 29) – In a 69 to 59 victory, Scottish lawmakers voted to seek a new referendum on independence from the U.K. within the next two years. As Brexit negotiations began, some analysts suggested a Scottish referendum will act as an unwelcomed distraction for the U.K. government. According to First Minister Nicola Sturgeon, "The mandate for a referendum is beyond question, and it would be democratically indefensible – and utterly unsustainable – to attempt to stand in the way of it."

·      China

o  (Mar 1) – China's manufacturing PMI unexpectedly rose in February from 51.3 to 51.6. According to reports, despite the risk of trade tariffs, producers remained focused on ramping up new orders and exports.

o  (Mar 6) – China lowered its growth target from a range of 6.5% to 7% to "around" 6.5% after GDP officially grew 6.8% in 2016, the slowest pace in a quarter-century. According to Premier Li Keqiang, at this point, systemic risks are under control, however, the country must remain vigilant in their focus and attention "to the build-up of risks, including risks related to non-performing assets, bond defaults, shadow banking and Internet finance."

o  (Mar 7) – China's foreign currency reserves rose back above $3tr in February, the first monthly increase in the past eight months. Reports suggested the rebound reflected a regulatory crackdown, and to a lesser extent, a more stable yuan which helped stem capital outflows and eased fears of another round of devaluation.

o  (Mar 8) – China called for North Korea to stop its missile and nuclear tests, and for South Korea and the U.S. to cease joint military drills. According to Foreign Minister Wang Yi, the recent actions caused tensions to increase like two "accelerating trains coming towards each other.”

o  (Mar 8) – China’s February trade report showed exports rose 4.2% in dollar terms over the past 12 months, while imports soared 44.7% in yuan terms, resulting in an unexpected and rare trade deficit of 60.36b yuan ($8.75b). According to Bloomberg News, the timing of the Lunar New Year holiday skewed the data.

o  (Mar 9) – The Chinese consumer price index inched up 0.8% year-over-year, while the producer price index surged 7.8%, the highest since 2008.

o  (Mar 14) – China's retail sales rose 9.5% over the January/February period, falling short of expectations. Due to the disruptive nature of the Lunar holiday distorting the data, Chinese officials released the retail data over a combined period of the first two months of the year.

o  (Mar 14) – Chinese industrial output – a proxy for economic growth – expanded 6.3% in the January/February period, higher than expected, and the fastest pace in sixteen months.

o  (Mar 16) – The People’s Bank of China raised rates for the third consecutive month, keeping in step with the Fed. The PBOC increased the rate it charged in open-market operations by 10bps to 2.45%, and on its medium-term lending facility from 2.95% to 3.05%.

o  (Mar 21) – According to people familiar with the situation, China's central bank injected hundreds of billions of yuan into the market after payments on borrowing in the interbank market were missed. Reports suggested that some smaller financial institutions defaulted on interbank borrowings as other banks were unwilling to offer funds, reducing overall liquidity.

·      Japan

o  (Mar 3) – Japan's January core consumer price index, which excludes fresh food but includes energy, rose 0.1% over the past 12 months after falling 0.2% at the end of 2016. Still well below the central bank's target of 2%, it is nevertheless the first rise in more than a year.

o  (Mar 8) – Japan's economy grew at a 1.2% annualized rate at the end of 2016, more than expected, according to Bloomberg. According to reports, the lager-than-expected improvement was the result of the fastest pace of capital expenditures since 2014.

o  (Mar 16) – The Bank of Japan kept its key rate on hold at -0.1% and maintained the current pace of asset purchases at ￥80 trillion ($705bn). Following the policy decision, Governor Haruhiko Kuroda noted that inflation momentum at this point "wasn't strong enough" to warrant a change in policy.

o  (Mar 24) – According to BOJ Governor Haruhiko Kuroda, there is “no reason” to withdraw the bank's massive monetary stimulus now or raise bond yield targets, as inflation remains far from its 2% goal. Speaking at a Reuters Newsmaker event, Haruhiko went on to dismiss market concerns that the central bank will eventually lose its ability to control long-term interest rates.

-Lindsey Piegza, Ph.D., Chief Economist