By: Thomas Barry
While the US Federal Reserve announced an interest rate this week, news in equity markets was dominated by Facebook’s scandal and global trade tariffs. Facebook has been rocked (down 13% for the week) as news emerged that Cambridge Analytica, a data analytics firm, improperly obtained information on over 50 million Facebook users. Cambridge Analytica played was used to deliver targeted advertising in Donald Trump’s 2016 US election campaign and several other political movements, including Brexit. The news prompted a large selloff as markets considered whether advertisers and users would stop using Facebook. Increased regulatory concerns did spark some worries in other data driven tech stocks like Google which was down almost 10%.
The biggest global moves came when the US unveiled even more extensive trade tariffs on China, covering over $50bn in goods. China’s retaliatory tariffs made the prospects of an all-out trade war more realistic. The S&P 500 fell 2.5% on Thursday, followed by the ASX 200 falling almost 2% on Friday. High yield defensive stocks were the least affected by the news as investors looked to them for safety.
The defensive mindsets coming from the trade tariff news saw gold have its second best week of the year, ending up at US$1344. Oil climbed higher to $65 as Trump appointed John Bolton as the new National Security Adviser. Bolton is perceived to have a more hawkish foreign policy stance which has investors considering whether that could lead to sanctions on Iran, including restricting oil supply. Other commodities were mixed on the threat of tariffs potentially denting global resources demand.
With trade tariffs on everyone’s mind, investors rushed to safer assets like the yen which traded below 105 yen per US dollar – its highest since November, 2016. The Australian dollar also received a boost at times throughout the week, as markets saw the possibility for Australian goods to replace US goods into China. However, it finished the week mostly flat being countered by US interest rate rises and the potential for a slowdown in global commodities demand.
Another clear theme coming from the desire for safe assets was the move back into bonds. US ten-year treasury yields fell 5 basis points to 2.8%. Although the US Federal Reserve raised the cash rate to 1.75%, the move was largely priced in by market yields already. The drop in yields was followed similarly in German, UK, Australian, and Japanese bond markets.
Bitcoin experienced another volatile week, at one point trading above US$9000. Several traders were concerned that the 50-day moving average price would fall below the 200-day moving average – a key technical signal that had not been crossed since 2015. Japanese regulatory pressure on cryptocurrency operators prompted further fundamental concerns with the currency.