US markets closed higher as trade fears eases

06 Apr 2018 Evaluate

The US markets closed higher on Thursday, with major indices posting their first three-day rally in several weeks as worries about trade hostilities between the two biggest economies in the world continued to ease. Investors are increasingly looking to the start of earnings season next week, with plenty of optimism baked in. Atlanta Fed President Raphael Bostic said that the Federal Reserve should get interest rates up to neutral and then take a wait-and-see approach from there. The Atlanta Fed president said his definition of a neutral rate was federal funds rate in the range of 2.25% and 2.75%. The neutral setting of the policy rate is a value that puts neither upward nor downward pressure on inflation. In March, the Fed raised rates a quarter point to 1.5%-1.75%. So two more rate hikes this year would get the Fed into the low end of his neutral range. Bostic added that inflation is trending in the right direction and should hit the Fed’s 2% target in the next quarter or two. Separately, Atlanta Federal Reserve’s GDPNow forecast model showed that the US economy is on track to grow at a 2.3 percent annualized rate in the first quarter following the latest data on vehicle sales and trade balance. The latest estimate on gross domestic product was slower than the 2.8 percent growth pace calculated on April 2.

On the economy front, the US trade deficit rose 1.6% in February to reach nearly a 10-year high, underscoring the seemingly near impossible task of the Trump administration to dramatically reduce the gap as the president has vowed. The US trade deficit rose to $57.6 billion in February from $56.7 billion in the prior month. That’s the biggest deficit since October 2008. Just one year ago, early in Trump’s first year, the deficit was 24% smaller at $45.9 billion. Imports and exports both set fresh records. Imports climbed 1.7% to $262 billion, led by big increases in crude oil and pharmaceutical drugs. Exports also climbed 1.7%, with the U.S. shipping more autos and aircraft.

Meanwhile, the rate of layoffs in the US rose sharply around the Easter holiday, but they still remain extremely low and reflect the best labor market in decades. Initial US jobless claims jumped by 24,000 and stood at 242,000 in the seven days ended March 31. The more stable four-week average of claims rose a much smaller 3,000 to 228,250. Claims often swing sharply from week to week, and the monthly average usually gives a better read on the health of the labor market. Last week’s surge likely reflected issues with seasonal adjustment around the Easter holiday. The number of people already collecting unemployment benefits, known as continuing claims, fell by 64,000 to 1.81 million. That’s the lowest level since the final days of 1973.

The Dow Jones Industrial Average added 240.92 points or 0.99 percent to 24,505.22, the Nasdaq gained 34.445 points or 0.49 percent to 7,076.55, while the S&P 500 was up by 18.15 points or 0.69 percent to 2,662.84.

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