Weekly Market Update

11/03/2019

Growth fears re-emerged last week after the European Central Bank unveiled further bank stimulus measures and was considerably more dovish in its language. Chinese export data was weak, and the US trade deficit ballooned, despite Donald Trump’s trade war attempting to do the reverse. In the UK, the lack of progress on Brexit ramped up pressure ahead of the critical Commons vote. Current expectations are that the bill will be voted down again. This will make the chance of an extension of the Article 50 deadline more likely.

China lowered its economic growth target for the year ahead. The news was as expected as their economy was slowing down before trade wars started to impact. With recent export data falling 20.7 per cent in February year-on-year, the slowdown has intensified. The government seems to understand the challenging growth environment as well as the financial risks it faces on many fronts.

The US trade gap ballooned to $621bn (£472.5bn) last year, while February’s US job numbers were disappointing and a major surprise to economists’ expectations. The trade war was supposed to shrink the US deficit, but it actually jumped to the widest it has been since 2008. US President Donald Trump made the reduction of the trade deficit a key benchmark for his year-long trade war. It has driven his America First protectionist policies, which have seen the US impose huge tariff hikes on billions of dollars on foreign goods.

Part of the problem is Trump’s own tax policies. They boosted US consumption and a lot of that spending went abroad. This happened as growth was slowing in other parts of the world, contributing to a rising dollar. That made US exports more expensive and less competitive. The data could emerge as a political vulnerability for Trump as he prepares for his 2020 re-election bid battling low approval ratings and a crowded field of Democratic contenders.

Economic growth in the Eurozone slowed to 0.2 per cent in the final three months of last year, half the rate seen in each of the first two quarters of 2018. As a result of the recent weakness, the ECB changed its forward guidance on interest rates to keep them at their present levels at least through to the end of 2019. The ECB also announced further bank stimulus in the form of Targeted Longer-Term Refinancing Operations (TLTROs), which are auctions of multi-year loans at low rates to banks in an attempt to support growth.

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