Weekly Market Update


International relations surrounding President Trump’s recent tariffs provided a challenging backdrop for markets last week. However, stocks moved ahead, helped by weaker US wage growth and news of a possible thawing in relations between the US and North Korea, as the White House announced the US president had agreed to meet the North Korean dictator before May.

The US President signed off on new tariffs on steel and aluminium imports, which brought widespread condemnation from all quarters, resulting in the resignation of Gary Cohn from his position as Trump’s economic adviser. Trump did grant Canada and Mexico a conditional exemption on Thursday, but his tariff proposals faced further opposition from Republican politicians, including Paul Ryan, the Speaker of the House of Representatives. With the President looking to shift on tariffs if nations produce reciprocal tax changes, there could be a lot on uncertainty surrounding potential trade wars.

On the economic data front, the US economy experienced strong employment numbers during February, the biggest gain in a year and a half, dwarfing expectations. The participation rate also rose, meaning more people are being drawn back into looking for jobs. Despite the massive uptick in hiring, wage growth was unable to keep up as the 12-month increase in pay slipped to 2.6 per cent from January’s downwardly revised figure of 2.8 per cent. With the US economy at virtually full employment, the fear is any rise in wages will drive inflation, forcing the US Fed to hike interest rates more aggressively than markets would like.

China announced it would pursue annual growth of 6.5 per cent this year, unchanged from last year. There will be a policy focus on financial risk management and issues pertaining to quality of life.  China’s fiscal deficit target has been lowered to 2.6 per cent of GDP from 3 per cent last year, the first reduction since 2012.

Japan’s economy advanced by more than expected in the final three months of 2017. Fourth-quarter growth was revised upwards to 1.6 per cent on an annualised basis. There was a flurry of worry earlier in the week when Haruhiko Kuroda, governor of the Bank of Japan, suggested that the central bank would start reducing the support it has provided to the Japanese economy since the financial crisis. His statement was later dialled down.

The European Central Bank reaffirmed its loose monetary policy by keeping interest rates unchanged but appeared to have dropped some wording from its recent statement minutes suggesting it would act if growth was lower than expected. While not a major change in language it could be taken as a further sign of the commitment of central banks globally to steadily reduce the loose monetary conditions that have prevailed for a decade now.

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