Weekly Markets Insight Report - March 26th, 2018 - London Academy of Trading

Equities:

President Trump’s America First trade agenda turned from steel imports to Asian technology and intellectual property. So U.S. equity markets reacted poorly to the prospect of a global trade war as it is seen as the most serious risk for global investors.

Equities whose earnings are linked to trade fell sharply with Boeing and Caterpillar falling by 5%.  

The odd trade spat is not a reason to panic, however, the threat of wide ranging tariffs is causing a concern. The global economy appears to be weakening after a period of globally synchronized growth.

Equities are sliding into negative territory and many fund managers are starting slip underwater, the sentiment among fund managers is that the talk of tariffs could puncture the equity balloon.

However, for the glass half full optimists, equities are roughly where they started the year and so far we are talking a bout a trade spat not a full blown war so as quarter end approaches, do not be shy of sniffing out a few equity bargains.

The next test comes later on Thursday, when Washington is expected to unveil up to $60 billion in new tariffs on China targeting technology, telecoms and intellectual proper

Tech stock have been squeezed as they are collateral damage in the flow of Facebook’s mounting woes.

Mark Zuckerberg said he would fix the company’s problems as the year began and now as the end of Q1 approached the company has had one of the worst weeks in its history with $60 Billion wiped off the market cap! He will find restoring trust will be extremely hard and in a world, awash with scandals the sharing of private data looks to be an issue that will not go away.

Fixed Income:

China’s ambassador to the U.S. wouldn’t rule out the possibility of the Asian nation scaling back purchases of Treasuries in response to tariffs imposed by President Trump.

China is America’s biggest foreign creditor. It held through various state agencies $1.17 Trillion in Treasuries as of January, or about 19% of all foreign holdings of U.S. government securities.

The U.S. cannot risk weaker demand for its debt from its major buyers as it faces a rising budget deficit in coming years. The tax cuts approved in December will reduce revenue; thus the Treasury has to sell more securities to pay the government’s expenses.

All this comes at a time when the Fed is scaling back purchases of Treasuries as it gradually reduces its $4.4 Trillion balance sheet.

The prospect of swelling Treasury issuance helped drive benchmark 10-year yields to a four-year high of 2.95% in February. It closed on Friday at 2.813%.

Next week alone, the U.S. is set to sell $30 Billion of two-year notes, the most for that maturity since 2014.

The surge in short dated securities sales already taking place this year has met with sated investors and has driven sent rates higher. T2 has risen from 1.872% as the year began to 2.258% on Friday.

The Federal Reserve raised interest rates this week by 25bps as expected with the updated economic projections highlighting and upward revision to both growth and employment for 2018. Still, the interest rate dot plot continued to suggest that the committee remains on course for three hikes this year as inflation expectations remain firmly anchored at 1.9%.

Foreign Exchange:

The U.S. dollar remained lower against a basket of other currencies on Friday as fears of a global trade war kept the Dollar down.

The Dollar fell to a two-year low against the safe haven Yen, with USDJPY losing 0.10% to trade at 105.17.

The Euro was higher, with EURUSD up 0.32% to 1.2341.

Meanwhile GBPUSD jumped 0.31% to 1.4139 after news that the EU had agreed to adopt a negotiation stance on a future trade relationship with the UK after it leaves.

Elsewhere, the Australian Dollar was higher, with AUDUSD rising 0.48% at 0.7730, while NZDUSD inched up 0.64% to 0.7253.

Commodities:

It was a strong week for crude oil prices, led by gains on Tuesday and Wednesday that are holding as we move towards this week’s close.

After a pullback on Thursday, buyers returned on Friday to push prices back-up to fresh weekly highs.  

It was the inventories data on Wednesday that caught the attention of Oil bulls. The expectation was for a build of 2.6 Million barrels. On Wednesday morning, the EIA reported that the actual print was for a -2.6 Million reduction; so considerably less supply than what was previously thought as the actual data came in a full -5.2 Million below the expectation.

This led to a quick rush of strength that lasted through the US close, with WTI moving off pre-report support around $64/Barrel level, all the way up to those fresh seven-week highs at 65.69.

Gold prices surged this week with the precious metal up nearly 2.7% to trade at $1347.20/Troy Oz at the New York close on Friday. This comes amid continued weakness in broader risk assets with all three U.S. Major Indices down more than 4% on the week. For gold, the advance has taken prices through the monthly opening-range highs and keeps the focus higher heading into the monthly close.

Economic Calendar, all times are BST:

When/Nation Data Point/Event Expect Prior

Tuesday 27th

15:00 USA CB Consumer Confidence Mar 131.0 130.8

Wednesday 28th  

13:30 USA GDP QoQ Q4 2.7% 2.5%

15:00 USA Pending Homes Sales MoM Feb 2.1% -4.7%

15:30 USA Crude Oil Inventories -2.622M

Thursday 29th 

09:00 GER Unemployment Change Mar -15K -22K

09:30 UK GDP QoQ Q4 0.4% 0.4%

09:30 UK GDP YoY Q4 1.4% 1.4%

Friday 30th 

It is Good Friday and most markets will be closed

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