March 26, 2018 – Weekly Market Commentary

Summary: President Trump announced tariffs on about $50 billion worth of Chinese imports as well as new investment restrictions for Chinese businesses. Economists expect US consumers to bear the cost of the tariffs, but the effect on prices is unclear at this point. 

Summary: China announced plans for reciprocal tariffs on 128 US products including pork, wine, fruit, and steel. The US goods listed had an import value of $3 billion in 2017. The proposal calls for a 15% duty on some products and 25% on others. Retaliatory trade measures are significant, but the overall effect on trade between the two countries will be small considering that Chinese imports from the US are expected to exceed $172 billion this year. 

Summary: The UK and EU have agreed on a “large part” of the agreement that will eventually lead to the UK exiting the union. The agreement is conditional on both sides agreeing to a final withdrawal treaty, but it should smooth the path for a future relationship between the UK and the EU. 

Summary: The Fed approved an expected quarter-point hike that puts the new funds rate at a target of 1.5% to 1.75%. Fed statements about the rate increase mention a strong economy as the prerequisite. Moving forward, inflationary expectations and growth performance will determine the nature of the next hikes. Currently, the baseline number of hikes is still 3 for 2018, but many economists feel a 4th is possible. 

Summary: Analysts see emerging market equities as attractive despite risks. A healthy global economy coupled with momentum in emerging market reforms point to optimistic EM investment considerations. Investors can look to India as a model of EM success. Changes in its subsidy activity and banking rules show an increase in political stability and policy that facilitates economic activity. Indian economic prosperity is seen as applicable to other EM countries which fuels optimism in EM equities as an asset class over the long-term. 

Summary: El-Erian sees significant realignments in the markets following the early February sell-off and the pullback in tech stocks last week. It appears that investors are less confident about the market’s ability to shrug off political factors. Additionally, the negative news regarding Facebook showed how company-specific news can spark contagion selling in certain sectors.