Strong U.S. Employment and the Potential Impact of Tariffs

David O'Malley

By David O'Malley | March 5, 2018

Markets will experience a tug of war between the impacts of threatened tariffs and strong employment data in the week ahead.

The potential for a trade war as a result of the proposed tariffs by the U.S. on steel and aluminum has the ability to disrupt markets. Despite the backdrop of solid global growth and a surging U.S. economy, a change in paradigm is possible if other countries begin to engage in protectionist policies. It is hard to determine the exact impact of an increase in protectionism in this environment, but I do believe it could derail economic performance and equity gains. The impact on interest rates may be more difficult to determine, given the potential for higher inflation.

This week, the markets will also digest the February employment report. I expect the report to show solid job gains in February. Depending on the exact figures, unemployment rate could fall to 4.0%, while average hourly earnings could increase somewhere between 0.4% and 3.0% year over year.

I would remain cautious on both equities and fixed income in the short term, as protectionism and higher wage pressure could have a negative impact on financial assets.

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