Week 15 2018 – In Review


Stocks recorded solid gains and reversed the previous week’s losses. Markets remained volatile, however, as investors appeared to remain focused on the turbulent political environment rather than the upcoming release of first-quarter corporate earnings reports. The Nasdaq Composite Index performed best, helped by a rally in Facebook shares as investors seemed to react favorably to Facebook CEO Mark Zuckerberg’s testimony before Congress on Tuesday and Wednesday. While tech shares performed well, energy stocks led the gains in the S&P 500 Index, helped by a rally in crude prices to their highest level since late 2014.


Syria Fears Grow

Concerns over growing trade tensions with China continued to weigh on sentiment, although investors appeared to grow more optimistic that a full-scale trade war involving the world’s two largest economies would be averted. Chinese President Xi Jinping provided another boost to sentiment later in the week after he repeated a vow to ease access to sectors ranging from banking to auto manufacturing and to protect intellectual property in a “new phase of opening up.”


Even as the trade backdrop brightened a bit, new geopolitical clouds darkened the horizon. Stocks fell sharply in early trading Tuesday, following a tweet from President Trump threatening a missile strike on Syria in response to the Assad regime’s alleged chemical attack on dissident areas the previous weekend. Investors also appeared to be unsettled by tweets from the President attacking the Mueller investigation following the FBI’s seizure of documents from his personal attorney, Michael Cohen. Stocks rallied on Thursday after the President appeared to calm tensions on both fronts, tweeting that a Syria strike might not be imminent and that he would have already fired Mueller if he were planning such an action. Finally, reports surfaced on Thursday that the President was considering having the U.S. re-enter the Trans-Pacific Partnership, a multilateral trade agreement that could offer lower trade barriers to U.S. exporters.



With geopolitical tensions in focus, European stock markets ended the week higher as the start of earnings season and positive economic news countered some investor reluctance about the attractiveness of equity markets. As in the U.S., investor concern about the prospects of a trade war or the ramifications of a military confrontation centered on Syria seemed to ebb as the week progressed.


The European STOXX 600 Index advanced around 1% for the week. Germany’s exporter-heavy DAX 30 also rose for the week, despite news that the country’s exports plunged in February, largely due to a strengthening euro. German markets were supported by news that consumer price inflation accelerated in March, and they were also lifted by a report that China’s imports increased in the latest period. The UK blue-chip benchmark, the FTSE 100 Index, rose about 1%, but the index has been underperforming its European counterparts largely due to the strong pound, which weighs on the companies that convert non-UK profits back into the sterling. News of a decline in factory output did not seem to unsettle investors. Benchmark indexes in Spain, France, and Italy also ended the week higher.


According to its policy minutes published this week, the European Central Bank (ECB) pointed out that a strengthening euro and an increased risk of a global trade war could detract from the economic recovery currently underway in the eurozone. Following the ECB’s warning, European markets were somewhat volatile as investors weighed the impact.



Haruhiko Kuroda recently started his second five-year term as the Bank of Japan’s (BoJ) governor. Kuroda’s goal when he was first appointed in March 2013 was to snuff out deflation and to achieve an annual inflation rate of 2% in two years. In what became known as the “Kuroda Bazooka,” Kuroda implemented an aggressive quantitative easing program on a much larger scale than anyone had anticipated. Deflation has been vanquished, and while the 2% inflation goal has been elusive, Japan’s economy has flourished. Gross domestic product has expanded for eight consecutive quarters through December 2017, corporate earnings are booming (setting record highs in each of the past two years), and unemployment touched a 24-year low. The central bank’s easy money policies weakened the yen and spurred stock prices to multiyear highs.


At a news conference following his reappointment, Kuroda said, “There is still some distance to achieving the inflation target,” which confirmed for the markets that there would be no change in the central bank’s monetary policy stance in the near term. It seems that that was the desired goal because Kuroda may be concerned that interest rates could spike if the markets suspected an end to the current policy stance. The yen strengthened in 2017 and has continued its ascent in 2018, which poses a risk for the economy. Investors are also worried about the protectionist policies of U.S. President Donald Trump, as well as the threat of trade wars. These concerns showed up in the latest Tankan survey, which revealed that large manufacturers’ sentiment turned lower for the first time in about two years—possibly a sign that economic growth is peaking after the longest period of expansion in three decades.


All the best



Farringdon Group

+60 3 2026 0286

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