Weekly Market Update

16/04/2018

Global politics continued to take its toll on markets last week, with Russian companies’ subject to sanctions and a potential trade war sparked by US president Donald Trump. Investors are having a hard time trying to judge global developments, threats of a trade war and Western military involvement in Syria prompting a notably more cautious tone whilst sending the oil price to a three-year high.

The threat of a trade war between the US and China seemed to ease mid-week with some conciliatory noises from Chinese Premier Xi Jinping. The US imports significantly more than it exports from China, so Donald Trump has a strong hand as he can continue to implement tariffs beyond China’s capabilities.

Trump also had difficulties closer to home. Paul Ryan, the Republican Speaker of the House of Representatives, announced that he would be stepping down at the end of his term. Many commentators have suggested that Ryan’s personal difficulties with Trump played a part in his decision, along with the chances of the Republicans losing their House majority in November’s mid-term elections.

Recent geo-political events overshadowed US Inflation data last week. US core CPI is back slightly above the official target of 2 per cent. This is not emphatic evidence that inflation is about to accelerate into a serious problem again. After all, there was a sharper rise in late 2015. But it does suggest that the Fed may have real reason to be nervous about inflation. However, the Fed wants us all to know that the volatility of the past two months and the repricing of assets that occurred will not affect their behaviour. The fiscal boost administered by the tax cut has shifted the FOMC’s perceptions of the economy which had strengthened in recent months.

Also weighing on sentiment, was data out of China that showed a surprise monthly trade deficit in March for the first time in 13 months. However, on a positive note Beijing has sped up the pace of ownership reforms for China’s banking, asset management and insurance sectors, shifting the timeline for implementation from years to just months after President Xi Jinping pledged further opening of China’s economy to foreign investment. Fears over a potentially damaging trade war eased further after Xi also said he would reduce tariffs on imported cars and Trump praised his kind words. Trump also directed officials to explore re-joining the Trans-Pacific Partnership trade pact he withdrew from shortly after taking office.

UK home-buyer demand fell for its 12th consecutive month in March. Apart from the implications this has for the market itself, it also has the potential to impact the wider economy, contributing to a softer trend in household spending.

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