We expressed in early 2018 that the year will experience volatility, driven by news such as the monetary policy and trade protectionism. With the latest news on Trump’s administration imposing tariffs about US$60bil to punish China for intellectual property theft, it caused the market to come under pressure on worries of a potential trade war. We expect the markets will remain in jitters in the near term as investors are likely to be nervous with noises arising from the trade war issues. Besides, market watchers now expect the Fed to hike rates three times in 2018 as opposed to four (4) in 2018.

We feel that in today’s complex global trade, even a mild form of trade protectionism can disrupt the global supply chain due to strong interconnections. Thus, we think the upward momentum in stocks may have been broken. We can expect investors in general to be more attuned to rebalancing and taking profits especially when their positions get outsized. We foresee a near-term slant to bonds with yields expected to be low until greater clarity emerges. The currency has not reacted much as we feel traders are looking for early warning signals such as diplomatic reaction or disagreements between the countries and any major shake-up of prices.

• Trump’s administration unveiled tariffs to punish China for intellectual property theft, imposing about US$60bil in retaliatory charges. It caused the market to come under pressure on worries of a potential trade war.

• US stocks took a beating with the Dow diving 724.42 points to close at 23,957.89. The 2.9% decline was the worst since 8 Feb. Meanwhile, the S&P 500 fell 2.5% to 2,643.69, with seven of 11 sectors — including tech and financials — dropping more than 2%. Financials was the worst-performing sector, plunging 3.7%, its worst day since 8 Feb when it dropped 4.5%.

• We expressed in early 2018 that the year will experience volatility, driven by news such as the monetary policy and trade protectionism. Looking at the latter, the general fear is that protectionism can lead to a trade war which usually fails to end well as reflected in the past. We feel that in today’s complex global trade, even a mild trade protectionism can disrupt the global supply chain due to strong interconnections.

• Our view is that the markets will likely experience near-term jitters as investors are likely to be nervous with the noises arising from the trade war issues. In an immediate reaction, China has announced plans for reciprocal tariffs on US$3 billion of imports from the US, including products from steel to pork. The market is also digesting the US Fed MPC decision of an expected 25bps rate hike. Our baseline scenario is for three (3) rate hikes in 2018 with the probability for the fourth to take place is 25%.

• We think the upward momentum in stocks may have been broken. We can expect investors in general to be more attuned to rebalancing and taking profits especially when their positions get outsized. We foresee a near-term slant to bonds with yields expected to be low until greater clarity emerges. The currency has not reacted much as we feel traders are looking for early warning signals such as diplomatic reaction or disagreements between the countries and any major shake-up of prices.

Source: AmInvest Research - 23 Mar 2018