White House tariff flexibility buoys markets and North Korean events turn unexpectedly positive.
Equity markets rose this week, supported by a softening in US President Trump’s stance on steel and aluminium import tariffs. Further help came from the ECB (European Central Bank) reassuring markets over their continued dovish monetary policy stance and the rather unexpected news
Protectionism trumps interest rate concerns. This week, markets were on tenterhooks for the inaugural congressional testimony of Jay Powell, new Chair of the Federal Reserve. However, it was President Trump of the United States (US) who sent markets into a spin as he announced major new tariffs on steel and aluminium imports across the board of 25% and 10% respectively.
Having started the year almost universally bullish, a bout of investor nerves returned to markets this week as the United States (US) government bond market sold off, taking equity markets with it. The 10-year US Treasury yield rose to 2.79% (which moves inversely to price), its highest level in four years, dragging equities down with it over concerns of elevated valuation levels. The MSCI All Countries World index dropped 1.7% over the week. However, unlike the taper tantrum in 2013, not all markets were universally impacted, with, for example, the Australian S&P/ASX 200 rising 1.2% over the week benefitting from strength in the energy and banking sectors.
Currency played an important role in returns this week, as the US dollar’s slide, which began in January 2017, accelerated following a comment from US Treasury Secretary, Steven Mnuchin, being taken out of context. The US dollar index fell to its lowest level for three years, having briefly gone through $1.25 versus the Euro and $1.43 versus Sterling. The fall was only halted following a supportive statement in favour of a strong dollar from President Trump.