“Businesses seem to be paying little attention to the battles in Washington. Still, the economic data will start facing a tougher test in March and April when the automatic spending cuts start to take effect and when there will be layoffs in the defense industry and among civilian contractors to the U.S. government,” wrote strategists at futures broker R.J. O’Brien in Chicago.
Fiscal headwinds will make it more difficult for the U.S. economy to gain momentum, they said.
The heads of the House and Senate budget committees this week will introduce dueling budget resolutions. Tens of billions of dollars in automatic spending cuts began to take hold after lawmakers and the White House failed to reach a deal before March 1. Unless a short-term funding bill is passed by March 27, the government could face a partial shutdown.
The budget battle didn’t dent equities last week. The Dow DJIA +0.47% set a string of record closing highs in recent sessions, while the S&P 500 Index SPX +0.45% ended Friday at 1,551.18, just 14 points from its record. See: Stocks up for week; S&P 500 near record.
Meanwhile, money continues to flow into exchange-traded products that track the S&P 500, a sign retail investors may be regaining confidence. See: Investors flock to S&P 500 ETFs as record beckons.
Asian stocks traded mostly higher Monday, with Tokyo outperforming the rest of the region while Shanghai and Hong Kong saw modest pressure after the Chinese data. See: Asia stocks mostly higher, Japan leads.
European stocks traded lower. Ratings firm Fitch late Friday cut Italy’s credit rating one notch to BBB-plus, citing uncertainty in the wake of last month’s inconclusive parliamentary elections. See: Italian bond yields edge higher after downgrade.
Chinese consumer inflation jumped to 3.2% year-on-year in February, up from 2% in January for the largest rise since April 2012. Part of the rise likely came from the Lunar New Year holiday, which often produces a spike in prices for food and other goods.
Other data showed industrial product grew more slowly in January and February.
The U.S. economic calendar is virtually bare on Monday.
After much stronger-than-expected labor market data on Friday, February retail-sales figures will take center stage this week. A strong rise, excluding gasoline, would provide another piece of evidence that the economy is gaining momentum, while a weak number would indicate growth could remain uneven. See: Consumers hold key to higher job growth.