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The week in review by Ari Towli and Nick Stanhope 12.03.18

Article first published on: 03/12/18 10:13:am

Markets and key events

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White House tariff flexibility buoys markets and North Korean events turn unexpectedly positive

Equity markets rose this week, supported by a softening in US President Trump’s stance on steel and aluminium import tariffs. Further help came from the ECB (European Central Bank) reassuring markets over their continued dovish monetary policy stance and the rather unexpected news that President Trump is to formally meet Kim Jong Un of North Korea, for talks on North Korea’s nuclear programme. Markets are currently treading water ahead of the US non-farm payroll wage and employment data, due for release this afternoon.

As of 12.30pm London time, the US Standard & Poor’s 500 index is up 1.8% for the week, the technology focused Nasdaq index has risen 2.3%, EuroStoxx 50 is up 2.5%, FTSE All Share 2.1%, Australian S&P/ASX 200 up 0.6%, Japanese Topix index up 0.4% and Emerging Markets have risen 1.1%.

Despite President Trump formally adopting 25% import tariffs on steel and 10% on aluminium this week, coming into force within 15 days, some wriggle room was also offered, helping to soften the blow. Canada and Mexico are to be excluded from the tariffs, provided renegotiations on the North American Free Trade Agreement are successful. Additionally, a process will be created to allow for the exclusion of certain products and countries with a close security relationship with the US will also be able to seek exemptions. Nonetheless, there are expectations for the European Union to retaliate in the coming days. It has been widely reported that China is the ultimate target for these tariffs, yet they only represent between 2% to 4% of imported steel products into the US.


Issues under discussion

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Australian equities make progress despite being weighed down by materials and energy

The Australian S&P/ASX 200 index ended the week on a positive note 0.6% higher. Over the week only 2 sectors posted declines, with materials and energy falling 1.6% and 0.94% respectively. In particular, mining companies were weighed down by weaker iron ore prices which fell 3.4% to $US 73.23 a tonne.

In economic news, Australia’s trade surplus came in ahead of expectations in January. According to the Australian Bureau of Statistics, the country posted a seasonally adjusted trade surplus of AUD 1.055bn in January, up from a AUD 1.358bn deficit in the prior month.

The trade surplus was triple the forecast amount and was driven by a 4% month on month increase in exports, and a 2% fall in imports.
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ECB leaves interest rates unchanged, but drops pledge to increase QE

The ECB left interest rates unchanged on Thursday but in their statement, dropped the pledge to increase quantitative easing if the inflation outlook or financial conditions were to worsen.

However, this was quickly down played by Mario Draghi, the ECB’s president, who reassured markets that the quantitative easing programme would run until the end of September 2018 or beyond if necessary. A tightening stance will not be adopted by the Governing Council until inflation expectations have become more sustained. German bunds, having initially sold off, soon regained their poise, and are now trading at similar levels as at the start of the week, with the 10-year Bund yielding 0.65%.

Issues under discussion

All eyes on the non-farm payrolls

Markets are now waiting for the release of the US non-farm payrolls, due out at 1.30pm London time, with expectations for 200,000 net new jobs having been created and annual wage growth for February of 2.8%.


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