As expected, the insanely wild ride on Wall Street continues unabated this morning. Just about the time it looked like the stock market action was improving, Mr. Trump decided to drop another bombshell.

In case you missed it, last night at about 7:00 pm, the President tossed out the idea of another $100 billion in tariffs on Chinese goods.

The move comes on the heels of Larry Kudlow's assurances that we are not in a trade war, but rather in the process of negotiating with Beijing. But with Mr. Trump now saying that there might be a "little pain" resulting from the China trade dispute, which is a direct contradiction to Kudlow's comments on Wednesday, it appears the President is taking a hard line here.

While it is true that it will take months for any of the President's proposed actions to be approved and/or enacted and the current move does indeed look to be part of an ongoing negotiation, there can be little denying that Trump is escalating trade tensions with China.

An important point to consider is that if China decides to stay in tit-for-tat mode, which Beijing has pledged to do, it will have to expand its actions beyond trade tariffs. And in my humble opinion, this is where the early anxiety in the markets stems from. For example, other actions the Chinese could take include devaluing the yuan, reducing purchases of U.S. treasury bonds, and/or halting purchases of U.S. oil, etc. And the bottom line is any of these actions could have a more far-reaching impact on the economy than simple tariffs. Hence the dive in stock futures.

The Big Kahuna

Moving on this morning, it's the first Friday of a new month, which means it's time for the Jobs report - aka the Big Kahuna of economic data.

Coming off February's blockbuster jobs number, March's headline came in on the weak side. The Labor Department reported that the U.S. economy gained 103,000 jobs last month, which was well below the expectations for 178,000.

As usual, there were revisions to the last two months' numbers. January's total was revised lower by 63K to 176K while February's big gains were actually enhanced by 13K to a total of 326K. But the net result was a decline of 50K over the last two months.

The good news is that, on average, the economy has been producing 202,000 new jobs per month over the past three months. This suggests that the labor market remains strong.

The unemployment rate came in at 4.1% and the labor force grew by 806,000, which was much better than the decline of 158,000 seen last month. For those of you keeping score at home, this puts the labor force participation rate at 62.9%.

One of the closely watched components of the report is wage growth. To review, the fear is that a tightening labor market will lead to higher pay and an uptick in inflation, which can be tough to slow. So, it is important to note that average hourly earnings came in with a gain of +0.3% for the month and are up +2.7% over the last twelve months. In short, this is viewed as a "Goldilocks" type of number.

The key here is that while wages are growing, there is no real wage pressure evident in the report. And from my seat, this ought to keep the Fed on hold and in "wait and see" mode for some time.

Although trade is front-and-center this morning, we need to remember that it was February's big job gains that caused the stock market to begin "correcting." The fear was that the economy was starting to overheat, that inflation wouldn't be far behind, and that the Fed would need to move more quickly than expected.

However, recent data has been less than robust, interest rates have not spiked, and the Fed isn't making any real noise about additional rate hikes (unless they are warranted, of course). As such, worries about a "policy mistake" on the Fed's part appear to have faded a bit.

Market Reaction

So, far the market reaction to the Jobs report has been muted. The yield on the 10-Year has pulled back a couple of basis points to 2.810% and stock futures have actually improved from where they were prior to the data on jobs.

However, given that it's Friday and we have new trade war talk, traders may decide that there is "headline risk" ahead for the weekend. As such, I would not be surprised to see some selling today as traders move to the sidelines.

Or not. Remember, the algos are primed and ready for any/all headlines relating to trade. Thus, we should probably expect to hear some jawboning to help keep Wall Street's freak-out in check. This, of course, could create a melt-up. But honestly, who knows. So, we shall see how the day turns out as there is a LOT for traders (and their computers) to consider here.

Thought For The Day:

Every day holds the possibility of a miracle. - Elizabeth David

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research

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At the time of publication, Mr. Moenning held long positions in the following securities mentioned: none - Note that positions may change at any time.

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