GOOD MORNING! As uncertainty about policy, the announcement of a 25% tariff on foreign made autos and ahead of this week’s day of tariffs ramps up, slumping consumer and business sentiment slumping had the markets priced a significant slowdown in the economy. Some evidence was seen in February’s personal spending. It had a muted rebound from January’s downward revised decline, with the increase in spending below forecasters’ estimates. Even worse, most of the spending was due to higher prices in real terms or adjusted for inflation. Core PCE Deflator, Fed’s preferred inflation gauge, was higher than expected, rising to 2.8% year-over-year rate from an upward revised 2.7% in January. This news on Friday roiled stocks, sending the benchmark equity indices sharply lower. Even in light of rising inflation before the impact from tariffs, traders pushed up bets on Fed rate cuts to nearly 3 this year, figuring the Powell put may be in play to ease the pain of consumers as wealth vanishes with the sell-off in stocks. The Treasury yield curve steepened on the week as the short end, tied to the Fed, saw yields move lower while the long end yields, more influenced by inflation and perceived risks, edged up.
     March Madness seems to be in effect. After Friday’s stock rout the stock index futures are down and signaling a negative opening. Treasury yields are also lower as funds want to be underweight risk and overweight safe assets for quarter end. Once past today, the week will be full. No fooling. On tap are the tariff announcements on Wednesday that has the markets goosey. Then there are also updated manufacturing (Tuesday) and service (Thursday) Purchasing Managers Indexes (PMIs) and a lot of labor market related data. The Job Openings and Layoff Turnover Survey (JOLTS) on Tuesday, the ADP Employment Change Report on Wednesday, and Thursday’s initial and jobless claims all lead up to the March employment report on Friday. Expect more volatility and buckle up.