Asian markets struggled throughout the week as trade war fears lingered, and were finally realized on the final trading day of the week. News that President Trump had signed off on tariffs for $60 billion of Chinese imports sparked panic across Asia on Friday, sending markets across the entire region sharply lower. What had been modest weekly losses turned into serious pullbacks, with Japan’s Nikkei leading the way lower as it was off by 5.9% on a weekly basis, mostly due to the Yen hitting a 16-month high against the U.S. dollar. Mainland China’s Shanghai Composite fell 3.5% on a weekly basis and the Hang Seng in Hong Kong saw a similar weekly loss of 3.8%. Australia’s S&P/ASX 200 fared best as it fell just 2.2% for the week, while South Korea’s Kospi ended the week with a 3.1% loss.
Heading into the new week it’s very likely that trade war fears will persist. This will likely pressure markets all across Asia again, as a trade war between China and the U.S. will impact supply chains all across the region. Japan is likely to continue to be hardest hit, as the uncertainties will send more money into the safe haven Yen. China had already responded to the U.S. tariffs with their own tariffs on $3 billion in U.S. goods on Friday, and more retaliation over the weekend would add fuel to the fire, potentially causing the start of a bear market in Asia.
European markets fell for most of the week, losing ground in four of the five sessions, and falling for the last three sessions of the week. Thursday and Friday were equally bad, with investors retreating from equities in response to the brewing trade war between China and the U.S. Germany’s DAX saw the worst performance of the region, losing 4.1% for the week. The CAC 40 in France wasn’t far behind as it dropped 3.9%. The pan-European Stoxx Europe 600, the broadest measure of European equities, finished the week with a 3.2% loss. In London, the FTSE fell 3.4% for the week, ending at a 15-month low as fears over increasing protectionism have drained risk appetite, and investors were also on hold waiting to see if EU leaders will approve the U.K.’s Brexit transition deal.
The upcoming week could continue to see rocky trade in Europe as we don’t expect an easy end to the trade war that’s escalating between the U.S. and China. In addition, both the Euro and the Pound have continued to firm against the U.S. dollar, which is bearish for equities, especially for the U.K.’s FTSE, which has roughly 70% of its listed companies making revenue outside the U.K. One bright spot for European investors is the lack of critical economic data being reported in the coming week. British investors will have to confront GDP data on Thursday however, which could either strengthen or weaken expectations for a May interest rate hike from the Bank of England.
U.S. markets put in the worst performance of all major global markets in the past week, as Wall Street has not been pleased with the U.S. trade war being started by President Trump; nor have they seen any positive features to the continual changes in the Trump administration. Markets don’t like uncertainty, and if there’s one thing that characterizes the Trump presidency in 2018 it’s uncertainty. The Nasdaq had the worst performance, falling 6.5% as the scandal at Facebook, where user data may have been improperly provided to a data analysis company working for President Trump during the 2016 election campaign, has sent large ripples throughout the entire tech sector. The S&P 500 fell into negative territory for the year as it lost 6.0% on a weekly basis, and the Dow dropped 5.7% as it saw broad based weakness as well.
The coming week will almost certainly see continued worries over a brewing trade war with China. So far China has only responded with tariffs on some $3 billion of U.S. goods, while the U.S. has imposed tariffs on $60 billion worth of Chinese goods. This leaves plenty of room for China to retaliate. This is the real wildcard that is likely to keep investors on edge in the coming week, as heavy tariffs from China on U.S. goods would be a heavy blow to economic growth in the U.S. Hopefully the weekend will have given investors time to put the Facebook scandal aside, and allow some recovery in the tech sector, which was battered harshly in the past week.
Gold finished at an eight week high as it added 2.8% for the week on trader worries over a potential trade war. Such a war has the potential to increase inflation significantly and is seen as a bullish sign for gold. The coming week is also likely to be positive for gold, as there is little chance the uncertainties regarding tariffs will dissipate, and additionally the U.S. dollar has come under pressure once again.
Crude scored its biggest weekly gain in eight months, with the West Texas Intermediate contract gaining 5.6%, while Brent crude, the global benchmark, tacked on 6.4%. The gains came as traders saw the potential for OPEC to extend production cuts into 2019. There has also been increasing geopolitical tensions in the Middle East, and Venezuelan production looks as if it could continue falling for some time. Fundamentals look quite pleasing for crude right now, and the only potential problem could be if traders begin to worry about a drop in demand if a trade war were to break out fully.
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