19 to 25 March: Playing the Trump card

On the face of it, last week’s equity market sell-off, the worst in 2 years for the US, was all about the threat of Donald Trump starting a trade war. The reality is a little more nuanced:

  • Anti-Trade or Anti-China? Whilst the POTUS did announce a 25% tariff on up to USD 60bn on Chinese imports with high intellectual property content, the Trump administration exempted numerous countries, including the entire EU and Korea, from the steel and aluminium tariff. Moreover, progress was made on NAFTA as the US abandoned its requirement that 50% of the content of vehicles assembled in the region must come from the US.
  • Bark or Bite? Trump’s modus operandi is to make aggressive public statements, which are then watered down during implementation. The Chinese also appear keen to maintain a constructive dialogue.
  • Tip of the Iceberg? It is not just trade via which Trump’s unconventional management style threatens to create volatility. Turnover in his administration continued last week with National Security Advisor H. R. McMaster replaced by former U.N. Ambassador John Bolton and John Dowd, Trump’s chief attorney in the Mueller probe, resigning. According to the Brookings Institute, this means around half of the President’s key staff has left since he was inaugurated. Indeed, the Washington Post highlights that there will have been 3 national security advisers, 4 communications directors, 2 chiefs of staff (and the incumbent is currently out of favour), 2 press secretaries and 2 FBI directors in 14 months.
  • Data Lull? It’s not all about Donald either; after the strongest and most broad-based period of growth since the GFC, the market got carried away in January and has struggled for direction as economic data has moderated.

Whilst we certainly do not wish to ignore the danger of US led geopolitical upheaval, our core outlook remains unchanged. We are in a new more volatile regime, given marginal headwinds are building, but we expect global growth to continue. Greater uncertainty is particularly the case in the US, which we see as later cycle than its global peers.

Bucking the risk-off trend last week, were oil markets. Crude prices hit seven-week highs, following the biggest weekly gain in 8 months, after increased tension in the Middle East and speculation OPEC could extend output limits.

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