As March draws to a close, investors will be reflecting on just how brutal the month has been. The FTSE is on track for its biggest monthly sell off since 2015, whilst US stocks experienced their worst week in over two years.
The Dow closed Friday down 424 points, added to Thursday’s 700 point plus sell off, whilst the S&P and the Nasdaq closed down 2.1% and 2.4% respectively. A fitting finish to a week which saw President Trump announce 25% trade tariffs on $50 billion of Chinese imports, the Chinese retaliate by drawing up a list of 128 US products as potential targets should no agreement between the world’s two largest economies be reached. The Fed hiked rates by 25 basis points and Facebook (NASDAQ:FB) plummeted over 10% amid the Cambridge Analytica scandal.
Trade war fears, tighter monetary policy and the Facebook data mismanagement scandal have thrown into question the three pillars underpinning the latest run up in the bull market, namely, strong global growth, cheap money supply and an insatiable demand for tech stocks. Consequently, risk has been pulled off the table sending indices tumbling across the board, whilst flows into safe havens have increased. The USD/JPY fell to a 16-month low and gold, received an injection of life.
With no high impacting data due for release today, sentiment is expected to be the principal driving force as investors continue to digest trade tariff developments. Whilst the Yen is drifting higher, aiming for 105.00, Asian indices are trading heavily lower at the start of the new week, picking up where Wall Street left off, while Europe is pointing to a slightly higher start.
FTSE to remain under pressure
The FTSE dropped sharply in the previous week, on the back of a BoE boosted pound and eroding risk sentiment. The index fell convincingly through 7000 on Thursday and with no high impacting UK releases or events in the calendar early this week, the FTSE is susceptible to further losses
Eurozone joins the list of exempt countries
The Dax, although pointing to a lower start, is showing signs of resilience, whilst the euro continues to rebound following Friday’s announcement that the euro-zone will be exempt from the steel and aluminium tariffs. Robert Lighthizer told a Senate panel that Trump is 'pausing' the tariffs for the bloc until further discussions have taken place. The euro-zone joins the likes of Argentina, Australia, Brazil, Canada, Mexico and South Korea.
Dollar in two minds
The dollar, has been in two minds about how to respond to the market turmoil hitting bourses across the week. As the US is stirring up the trouble we would expect the dollar to be hit hard and the worst performer. However, on occasions we are seeing the safe haven status of the dollar come into play, offering protection. How hard the dollar gets hit going forwards depends largely on how sharp the selloff in the equity markets. Another week of 700 point loss days for the Dow could see traders favour the dollar, meanwhile signs of a slower drift downwards is likely to see the dollar under further pressure.
Aussie dollar takes a hit
The Australian dollar is also taking a big hit from these trade war fears. Whilst AUDUSD is holding up reasonably well, the Australian dollar has dropped significantly versus other major pairs including the pound and the euro. Yes, Australians managed to gain exemptions from the steel and aluminium tariffs; however, Chinese involvement in a potential trade war is concerning for a country whose GDP is so heavily dependent on raw material exports to China. A trade war involving China will almost certainly indirectly slow the flow of Chinese wealth into Australia.
Opening calls
FTSE to open 17 points higher at 6938
DAX to open 14 points higher at 11900
CAC to open 5 points higher at 5100
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