Market movers today
Focus today will continue to be on the equity market rout caused by worries over trade war and headwinds in the US tech sector. We should expect more news this week on the trade front as Commerce Secretary Wilbur Ross on Thursday last week said to Bloomberg that the announcement on tariffs on China would come ‘very very soon’.
Markets will also look ahead for the US employment report on Friday, where wage growth will again be in focus.
On the agenda today are final Euro area PMIs and first PMI releases for UK, Sweden and Norway.
Selected market news
Stock markets took a further beating yesterday, as the S&P500 slid more than 2% leaving the index down 10% from the peak in late January. Tech stocks were among the big losers as Amazon came under fire from Donald Trump over Easter adding to the headwinds for tech stocks from Facebook and Tesla recently, see Bloomberg .
Bond yields and oil prices also moved lower, while the USD strengthened. Asian stock markets are trading in red this morning, whereas the S&P future is up slightly.
In addition to worries over trade and headwinds for tech stocks, there are rising signs of a turn in the global business cycle. The Chinese Caixin PMI for March dropped more than expected to 51.0 (consensus 51.7) from 51.6 in February. PMIs for other Asian countries were also softer in March and the US ISM index released yesterday dropped more than expected to 59.3 (consensus 59.6) from 60.8 in February. Overnight the Japanese Tankan survey for Q1 showed a similar picture of moderation in the business cycle, which has also been evident from a move lower in the Japanese PMI in recent months.
While the PMI data generally still point to robust growth, there are clear signs the global cycle is now decelerating . This normally causes more volatility in risk assets and provides support to core fixed income markets. We still expect equity markets to outperform bonds on a 12-month horizon but we are likely to see continued high volatility in the months to come. We also do not expect the next leg up in bond yields until 2019, see Yield Outlook: Higher 10Y yields very much a 2019 story , 15 March 2018.
On the trade front things may have to get worse before it gets better. The coming announcement from Trump on tariffs on Chinese goods will likely trigger a retaliation from China that may involve tariffs on US soybeans and aircraft, taking the trade worries a notch higher. We expect the trade tensions to calm down after that as negotiations unfold and no more measures are taken. However, until then the markets may worry over a further escalation, see also Flash Comment: Moderate Chinese retaliation but keeping the powder dry , 23 March 2018.
