Weekly Market Update

03/04/2018

Deepening declines for technology companies and rising trade tension between the US and China unnerved investors last week. President Trump appears to be giving with one hand and is now taking away with another. At the beginning of the year, US stock markets reached record highs on the back of Trump’s tax reforms, but now his trade war and attacks on Amazon are unnerving investors.

The passing of tax reform proposals in the US should have been the catalyst for further gains, along with an improving jobs market and rising wages. Now some investors remain cautious regarding the technical backdrop for markets, given how some of the key US stock market indices are hovering quite close to important levels of support.

However, corporate deal making volumes rose past $1.2trn over the first quarter of 2018, marking the fastest start ever in M&A for a year. Activity was 67 per cent higher versus 2017 and roughly a third more than what was seen in the first quarter 2007, when the previous record was set.

US Gross domestic product rose at a 2.9 per cent annual rate in the fourth quarter, exceeding economists’ expectations, although marginally lower than the previous two quarters. Consumer spending was revised higher for the fourth quarter while earnings remain robust benefiting from solid economic growth.

China’s tariffs on some specific US products came into effect, and this has also rattled investor confidence. Beijing decided to impose levies on approximately $3 billion worth of goods from the US. In the grand scheme of things, China’s response hasn’t been too aggressive, but any further escalation creates uncertainty and volatility for markets.

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