Market movers today
The US-China trade tensions continue to be the main theme in the markets . Markets calmed down yesterday and rebounded during the day as focus shifted from fears of a trade war to signs of negotiations. Yesterday we published an update looking at where we expect to go from here, see Research: Two scenarios for the US-China trade conflict , 4 April 2018. The scenario we believe most in is the one in which the US and China enter negotiations and things gradually calm down and we see a kind of ‘grand bargain’. The second scenario is the one in which Trump strikes back at China’s retaliation and we enter a trade war. So far there are no signs of this, though, and neither of the countries have any interest in a trade war that will damage both sides and has no winners. If we are right and we move into the first scenario, we may have seen the worst in the markets and could see more relief soon.
On the data front today we have a bunch of Euro releases: German factory orders, Euro retail sales and final Euro PMI service. We expect the figures to confirm an overall picture of decent but decelerating growth.
We also get UK PMI service, US jobless claims and US trade balance.
In Scandi Norwegian house prices are due as well as the credit indicator.
Selected market news
Stock markets saw a sharp rebound yesterday and the US market rallied into the close as focus shifted to the possibility of negotiations between the US and China. Donald Trump’s new economic adviser Larry Kudlow replied yes to a question on whether the tariffs might never go into effect and later in the day said: ‘I don’t think it’s a trade war. I think there will be intense negotiations on both sides. I think we’re going to come to agreements’, see Reuters . Commerce Secretary Wilbur Ross has also clearly signalled that the tariffs should be seen as part of a negotiation: ‘Of course, in all negotiations there are ups and downs and we are likely to see some hiccups. But ultimately we believe an agreement will be found avoiding a trade war’.
Asian markets have taken up the tone from the US yesterday with a decent rally across equity markets, see Bloomberg . Bond yields have also rebounded as the safe-haven demand has faded.
Yesterday the US ISM non-manufacturing index fell to 58.8 in March , below consensus. This is still a healthy level, but it highlights what we see in a lot of data currently, that we have likely passed the peak in the global business cycle and will see a deceleration over the coming quarters. While we expect economic as well as profit growth to stay at a decent levels, we no longer have the tailwind to risk assets from an accelerating business cycle. Deceleration in economic momentum normally provides support for fixed income markets as we have witnessed in recent months.
