Weekly Market Update (February 26 – March 2, 2018)

March 4, 2018

American markets recorded losses this week, following an eventful week. The DJIA closed down at 24,538 – a 3% loss for the entire week, while the S&P 500 closed down at 2,691 (2% loss). This marked the first monthly loss of U.S markets since October 2016. Stock market losses were led by a significant drop in Caterpillar stock and other company’s affected by President Trump’s tariff comments (i.e. automobiles, materials). Interest rate fears spiked in the markets this week, with investors fearing that a rate hike to 1.5% could affect market levels. Fed Chair commented that U.S economic growth and inflation may be higher than expected, leading markets to believe in numerous rate hikes in 2018. Powell confirmed this assumption, mentioning that four total rate hikes this year would be an essential and “gradual” raise to combat inflationary levels. President Trump continued to stir up equity markets by affirming that he would be imposing new tariffs on trade. It was announced Thursday afternoon that he would impose tariffs on both steel and aluminum imports, causing American metal producer’s stock to jump this week. Auto manufacturers saw a drop in share price, as many import cheaper steel/aluminum for production needs. EU officials fired back at Trump’s intent, by announcing a plan to raise tariffs on U.S imports of whiskey, motorcycles (i.e. Harley’s), and blue jeans. The rising possibility of a trade way brought higher levels of volatility back into the market. Rising inflation caused longer term bond yields to increase, with the 10-year treasury increasing following the worries.

Stocks fell in Canada, following their American counterparts – with the TSX closing at 15,384, a 1.6% loss closing on Friday. Energy stocks took the largest hit on the TSX, while the less weighted health care sector also tumbled – following Valeant Pharmaceuticals reducing its revenue forecasts in 2018. The loonie also lost ground against the greenback, as the stronger USD caused commodity prices to drop. An unexpected increase in U.S crude inventories was also reported, causing crude prices to fall further. This led the oil-tied CAD to weaken even more. Investors are looking to this week’s Bank of Canada interest rate meeting, for insight into economic conditions in Canada. A majority of investors believe that the central bank will keep rates untouched at 1.25%.

Equity markets in Europe also closed the week lower, following trade threats by President Trump and below expected economic data. The STOXX 600 declined 2% this week, with other European indices following closely behind at 1% declines. Core inflation in the region declined 0.1% from January, currently sitting below the 2% target at 1% core and 1.2% non-core inflation. This helped lead markets into negative territory later into the week. Unemployment in the EU remained untouched at 8.6%. Similarly, Japanese markets ended the week lower. The Nikkei closed at 21,181, marking a 3.25% decline this week, after fears of a trade war reached the country. Japanese automakers could possibly see increasing costs due to tariffs imposed on steel and aluminum. The Bank of Japan (BoJ) reduced its bond purchases in January, only to increase its purchases in February. This confusion led investors to worry about the actions of the central bank. Central bank chair Kuroda commented that the BoJ may start to slow down its asset purchase program, in response to slowly increasing inflation. Chinese manufacturing indices dropped unexpectedly in February’s, with the PMI lowering to 50.3 from January’s 51.3. China’s PMI is a good sign of the global economy – slowing numbers may signal slowing economic growth in the global economy.

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