The equity market has so far, by and large, taken in its stride the threat of the Trump’s trade tariffs, possibly as hopes rise that possible legal issues could delay the president’s signature. Having said that, this subject could continue to cause market jitters. At their monthly meeting, the ECB raised their forecasts for economic growth for the region whilst at the same time moderating their stimulus measures expectations by removing “easing bias” from its monetary policy message. In a nutshell exactly what the investment community, and the world in general, needs to understand is the next best step on the road back to a balanced global economy. Even if they are doing it in baby steps. Hope is now that economic growth provides the investment support and not the central bank. Mario Draghi, during the press conference, commented that he thought the two risks to the global economy, deregulation of banks and the threat of trade wars. Two policies that seem high on Mr Trump’s to do list.
The threat of trades wars has changed slightly investor focus, sectors such as materials which have been strong have come under pressure and the sectors less exposed for example telcos and utilities starting to outperform.
Another possible fillip to the equity market was the latest China trade data underlining that foreign and domestic demand remains robust in the region. China’s trade surplus with the US continues to increase, adding grist to the mill for Mr Trump and his trade tariffs.
Equity markets are likely to continue to be buffeted by the threat of trade wars and interest rates versus economic growth. Any change in sentiment to any of their levers will move capital markets one way or the other. For now, the pendulum has swung in favour of growth.