Key points to note

• The month of March was dominated by US President Trump’s announcement that tariffs would be imposed on imports of steel and aluminium, fuelling concerns of a trade war causing widespread market volatility. However, March also saw the release of many positive data announcements with falling unemployment rates around the world and positive company profits, but there remains a number of risks and investors are cautious.
• Global shares fell 2.4% in March continuing the trend of poor performance of international markets in February. US stock prices suffered losses later in the month due to a technology stock sell off caused by data access concerns from Facebook and trade war concerns.
• Whilst Trump tweeted that ‘Trade wars are easy to win’ the impact will be felt on both sides as it will have a negative effect on countries that export to the US, and also cause US consumers to struggle, as they either pay higher prices on imported goods or are forced to look to alterative locally made goods. China later that month announced reciprocal tariffs on imported US goods to the same value on items such as soybeans, aircraft and passenger vehicles. Whilst the current tariffs only represent a small portion of the traded goods between these countries, the concern is that a trade war will continue to escalate with tariffs placed on more and more goods. Whilst meetings have been proposed for the US and China to renegotiate tariffs in April, markets are expected to remain volatile going forward until investors have greater certainty over the impact on each country and the outcome of these meetings.
• Other key announcements during March was the further reduction in the US unemployment rate, an increase to US growth forecasts for 2018 and 2019, and rising US consumer confidence. Due to these ongoing improvements in economic conditions the US Federal Reserve increased US interest rates by a further 25 basis points (0.25%). A further two increases to the interest rate are expected this calendar year. However, this may depend on the impact of any tariffs (both on goods coming in and exports going out) and the flow-on affect for consumer prices and exporting companies in the US. Inflation is the other key factor, if the US does not experience a material slowdown in its current growth from a trade war, a strong level of inflation would also cause the Federal Reserve to consider additional interest increases. As a result, the US economy is facing uncertainty from two separate areas which will continue to cause uncertainty for investors and ongoing volatility.
• Australia’s real Gross Domestic Product (GDP) remains positive but under our long-term average. The overall result shows the Australian economy stuck in a holding pattern since 2013 of around 2.5% growth. Whilst it is positive, it has meant that growth has been insufficient to make a significant dent in the unemployment rate, which was reported at 5.6% for February. Household consumption has also been in a fluctuating pattern with a positive quarter followed by a negative quarter resulting from ongoing concerns around wages growth and consumption spending.
• The Australian share market fell in March as the announcement of US tariffs being imposed on imported steel and aluminium saw investor confidence in mining stocks fluctuate until it was announced Australia was granted an exemption from US tariffs. The Royal Commission continued to have a negative effect on the Financials sector with all four major banking stocks posting negative returns. With Mining and Bank stocks making up the majority of the overall value of the Australian market, any impacts on these areas will have a considerable affect, and this is why the Australian market has fallen further than other international share markets.
• The Australian Reserve Bank and The European Central Bank (ECB) left official rates unchanged, in line with market expectations.

Compiled with BT Applied Research Monthly Commentary – March 2018

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