Markets Insights

Markets could continue to feel unsettled

Aluminium tapes at a production plant in Anhui, China. US stocks pared their losses last Friday after a massive sell-off the day before following President Donald Trump's vow to impose severe tariffs on steel and aluminium. The anxiety over a trade w
Aluminium tapes at a production plant in Anhui, China. US stocks pared their losses last Friday after a massive sell-off the day before following President Donald Trump's vow to impose severe tariffs on steel and aluminium. The anxiety over a trade war could escalate with more details on the tariffs expected to be unveiled this week.PHOTO: AGENCE FRANCE-PRESSE

Concerns persist over a more aggressive US monetary policy, potential trade wars after Trump's tariff pledge

Frenetic trading could decide to stick around a while longer in Singapore and global equities this week, with persisting concerns over potential trade wars and a more aggressive United States monetary policy that could keep risk appetite deep in check.

US stocks pared their losses last Friday after a massive sell-off the day before following President Donald Trump's vow to impose severe tariffs on steel and aluminium.

But this could offer little comfort as it may just be another bounce in a highly volatile environment.

The Dow Jones fell 0.3 per cent last Friday. It is down 3 per cent on the week and in negative territory for this year. The S&P 500 and Nasdaq snapped a three-session losing streak and climbed 0.5 per cent and 1.1 per cent, respectively.

The markets are nervous that the US' major trading partners could retaliate after Mr Trump doubled down in a tweet, saying the US was "losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win".

The anxiety over a trade war could escalate with more details on the tariffs expected to be unveiled this week.

That, as well as the fear of more aggressive tightening in the US following Federal Reserve chairman Jerome Powell's upbeat view of the world's largest economy, has more or less halted the aggressive buying enjoyed in January.

BACK TO SQUARE ONE

Upbeat central bankers are something markets hate, as it means tightening. Back to square one at best was the bottom line for investors looking at the first two months of the year.

MR CHRISTIAN GATTIKER, research head at Julius Baer, referring to Fed chairman Jerome Powell's upbeat view of the US economy - which, along with anxiety over a trade war, has more or less halted the aggressive buying enjoyed in January.

"Upbeat central bankers are something markets hate, as it means tightening. Back to square one at best was the bottom line for investors looking at the first two months of the year," said Julius Baer research head Christian Gattiker.

"The debate remains around the severity of the inflation pickup. The new Fed chairman's hearings and inflation gauge releases were not fit to bring back confidence to risk assets though," he added.

There are several key headline risks ahead. Brexit jitters could linger following British Prime Minister Theresa May's "life is going to be different" speech last Friday with a somewhat conciliatory tone on the Irish border. The border dispute has eroded market optimism over a "soft Brexit" outcome.

Attention will also be on the outcome of last weekend's elections in Italy - the fourth-largest economy in the European Union - after a divisive campaign.

A significant event to watch is China's key political consultative conference that began at the weekend and is a prelude to the more important 13th National People's Congress in Beijing.

A string of central bank meetings are on this week's calendar, starting with the Reserve Bank of Australia tomorrow, followed by Bank Negara Malaysia and Bank of Canada on Wednesday.

The European Central Bank and the Bank of Japan - both of which had strongly inspired tightening expectations at the start of the year - will decide on monetary policy on Thursday and Friday, respectively, IG Markets' Pan Jingyi pointed out.

In the pipeline are trade data from Malaysia, Australia, the Philippines and Taiwan, fourth-quarter gross domestic product from Australia, as well as China's Caixin services purchasing managers' index, trade and inflation data.

In the US, last month's labour market report will be out on Friday, with the focus being on wages.

A version of this article appeared in the print edition of The Straits Times on March 05, 2018, with the headline 'Markets could continue to feel unsettled '. Print Edition | Subscribe