Asian markets came under pressure again this past week as investors got spooked again early in the week by hawkish commentary from the new Federal Reserve chairman. Later in the week an announced steel and aluminum tariff threw markets further into a tailspin. Japan’s Nikkei was the worst performer of the week, dropping 3.2% on a weekly basis as investors there were contending, not only with the news, but also with a stronger Yen. Mainland China held up surprisingly well, given the threats of a trade war by President Trump, with the Shanghai Composite ending the week down just 1.1%. Hong Kong’s Hang Seng dropped twice as hard as the mainland, losing 2.2% for the week. In South Korea, the Kospi had a similar performance as it lost 2.0%. Australia’s S&P/ASX 200 was one of the better performer, finishing 1.2% lower as it dropped in the final three sessions of the week.
The upcoming week will see all eyes on the U.S., where President Trump will announce whether or not his proposed trade tariffs become a reality. If they do, expect to see Asian markets head once more into a tailspin; but if they don’t there should be a sharp reversal in investor sentiment that allows markets to begin rising once more. Australia is likely in the best position, with commodities remaining in good shape; but Japan will face the strongest pressures as the Yen continues to strengthen on safe haven demand.
European markets got off to a good start on Monday; but that quickly evaporated in light of hawkish U.S. central banker commentary, poor corporate earnings, a stronger Euro, and finally the announcing of steel and aluminum tariffs by President Trump. After a good start European markets fell for four consecutive sessions, with losses intensifying at the end of the week. The pan-European Stoxx Europe 600, the broadest measure of European equities, ended the week with a 3.7% loss. Germany’s DAX underperformed the region as it suffered a 4.6% weekly drop, while the CAC 40 in France outperformed as it was down 3.4%. Over in the U.K., the FTSE fared somewhat better than its European counterparts as it finished with a 2.4% weekly loss, but was also at a 14-week low at the end of the week.
While the pending U.S. tariffs could continue to weigh on European markets at Monday’s open, there are political concerns from Italy and Germany that could set the stage for the week’s action, and in fact the sentiment for many months to come. On Sunday, Italian voters went to the polls for a national election, and in Germany the center-left Social Democratic Party will announce the result of its vote to decide whether to join a grand coalition with Chancellor Angela Merkel and her center-right Christian Democratic Union. Investors will also continue digesting corporate earnings, and there is a good chance the Euro will continue to firm, putting pressure on equities.
U.S. markets got off to a good start, as well, but soon fell into disrepair, losing ground for most of the week, although a rally in the final hour of trade Friday allowed the Nasdaq and S&P 500 to snap the three-session losing streak. Seemingly, U.S. investors were first to shrug off their concerns over the potential for a trade war in response to possible steel and aluminum tariffs announced by President Trump. For the week the Dow Industrials were the worst losers, falling 3.1%. The S&P 500 had a more modest loss of 2.0% and the Nasdaq remained the most resilient as it lost 1.1% for the week.
The coming week will see whether or not the announced tariffs become reality; and if they do there will almost certainly be a negative response, although it could be muted by the fact that the idea has already been partially digested by investors. Otherwise there isn’t much in the way of economic data for most of the week, although we will get the all-important employment data on Friday. It’s possible we’ll see a rebound this week, with markets moving cautiously higher.
Gold fell for much of the week on concerns over rising inflation and the strengthening U.S. dollar, but pared must of those losses in a strong Friday session that snapped the losing streak, leaving the precious metal with a 0.7% weekly loss. The potential trade war issue is a positive for gold heading into the new week as it could spur some safe haven demand. Over in the crude pits, worries over rising U.S. production led to a 3.6% weekly loss for the commodity. Additionally, crude ended February with its worst monthly loss since August. The $60 level has become somewhat of a floor for crude, but concerns over rising production and inventories in the U.S. could keep pressure on crude in the coming week.
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