Daily Market Color April 2, 2018Trade War Prospects Continue to Weigh on Financial Markets Stocks Tumble into Q2 The threat of global trade wars continued to weigh on US stocks in the opening trading session of the quarter, as both the DJIA and S&P 500 fell below their 200-day moving average for the first time in nearly two years. Of particular concern to financial markets is the trading relationship between the US and China, where a series of retaliatory tariffs against US imports, which stand to affect 128 different kinds of goods, went into effect today. The move comes after China’s Commerce Ministry reported that US representatives did not respond to China’s request for exemption from the steel and aluminum duties announced last month. Separately adding to the prospect for trade wars, President Trump issued his relatively commonplace threat to pull out of NAFTA this weekend as he tweeted that “They must stop the big drug and people flows, or I will stop their cash cow, NAFTA. Need Wall!” in reference to his expectations for Mexico. The tech-heavy Nasdaq led losses amongst major US indices, declining 2.75% as shares of Amazon plunged more than 5% following President Trump’s Twitter attack (completely separate from previously mentioned Mexico threat) aimed at the company’s tax strategy. The DJIA and S&P 500 didn’t fare much better, falling 2.25% and 1.90%, respectively. US Treasury yields/swap rates fluctuated within a 6bps range throughout the day, rising in the morning before giving way to a rally in the afternoon that left yields/rates 1-3bps lower across the curve. The 10-year note yield finished at 2.73%, just above its lowest level of the past two months. In commodities, crude oil futures were not spared in the flight to safety, as WTI crude fell more than 3% to $62.85/barrel while gold climbed 1.35% to $1,345/ounce. Manufacturing Activity Remains Strong Today’s release of the Institute for Supply Management’s index of factory activity for March highlighted the key economic data releases. The 59.3 level, which missed expectations of 60.0, was a mild drop-off from February’s 14-year high level. The price index component of the survey rose to its highest reading in nearly 7 years, as increased costs were recorded in 17 of the 18 sectors. A slight slowdown in new orders was reported, as a measure for sales declined to 61.9 from 64.2 (albeit any 60+ figure remains representative of robust growth). The overall ISM manufacturing index has now recorded a reading higher than 55 for ten consecutive months. Swap Dealer Designation Deadline Approaching In regulatory news, CTC Commissioner Brian Quintenz indicated that the commission will finalize the de minimis threshold by October. This threshold is set to determine which entities are required to register as swap dealers. Currently, the threshold is set at $8 billion and the commission has been conducting several studies to determine what is appropriate. The threshold was set to be reduced to $3 billion, but the reduction was delayed pending further evaluation. The final result could have a significant impact on larger financial institutions, but the commission has not provided any insight or details on what may be the final rule.