Global equities fell -4.5% lower amid trade war fears, technology worries and central bank meetings. Recent market volatility is following the correction playbook almost perfectly. Scary stories are quickly extrapolated beyond their actual importance. Stock market drops and rebounds have been short, sharp, and steep. And the pace and duration of the downturn have been very typical of a correction. As we have always said, corrections are uncomfortable, but they come and go quickly so it’s best to wait them out—the bull market uptrend should resume before long.
On Thursday, President Trump signed an executive order putting tariffs on Chinese imports worth $50–$60 billion. Narrowly targeted tariffs are common and haven’t historically triggered trade wars, global recessions or bear markets. A true trade war with wallop power to derail a bull market would need to affect thousands of goods and knock off trillions in global GDP. In contrast, the recently announced tariffs amount to less than 0.1% of global GDP—far too small to derail the global economic expansion. For more analysis, please see our 03/22/2018 commentary, “China Tariffs: Big Overtime for Lobbyists, Small Share of Total Imports.”
Elsewhere in politics, Congress passed a $1.3 trillion spending bill that would keep the government funded through September 30. As of this writing, the bill is headed to the White House for President Trump’s signature. In US economic news, data were mostly positive. The Conference Board’s February Leading Economic Index (LEI) rose 0.6%, beating forecasts. The March Markit services and manufacturing Flash Purchasing Manager’s Indexes (PMIs) fell, but remained expansionary. February durable goods orders increased 3.1% m/m, beating expectations. As widely expected, the Fed—under new chairman Jerome Powell—raised their Fed-Funds target range by 25 basis points to 1.5%–1.75%. In Powell’s comments explaining the Fed’s sixth hike in three years, he noted economic improvement, strong job gains and inflation that is likely to stabilize around the 2% target in the year ahead.
In the eurozone, March Markit services and manufacturing Flash PMIs came in at 55.0 and 56.6—both below forecasts though still indicating expansion. January export and import values rose 9.1% y/y and 6.3% y/y, respectively. In the UK, February retail sales increased 0.8% m/m and 1.5% y/y—ahead of forecasts. Core inflation (excluding energy, food, alcohol and tobacco) slowed to 2.4% in February. The Bank of England left its monetary policy unchanged. The UK and European Union (EU) agreed on the length and terms of the post-Brexit transition period—through December 2020 the UK will act as an EU member. Whatever happens after 2020 remains unknown; however, markets will have plenty of time to price in the final agreement’s positives and negatives. For more, see our 03/19/2018 commentary, “About That Brexit Breakthrough.”
In Japan, the March Nikkei manufacturing Flash PMI fell to 53.2 from February’s 54.1—lower than expected. February core-core consumer prices (excluding food and energy) rose 0.5% y/y. The Lunar New Year skewed February trade data: export and import values increased 1.8% y/y and 16.5% y/y, respectively.
The US and UK release third estimates of Q4 2017 GDP. The eurozone reports February loan growth and Germany posts the March unemployment rate. Japan announces February retail sales, industrial production and unemployment data. China releases March manufacturing and non-manufacturing PMIs.
Source for all data cited is FactSet. This update constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Global equities are represented by the MSCI World Index. The MSCI World Index measures the performance of selected stocks in 23 developed countries and is presented net of dividend withholding taxes and uses a Luxembourg tax basis. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.