Another week has passed with markets trading weaker, driven by uncertainties regarding US tariffs and their impact on the economy. Equity indexes finished 2 to 3% lower, with Tech companies again leading the way. The volatility index VIX hit its highest level since August last year. Credit spreads followed the price action, trading 5 to 20bps wider, while Treasury bond yields were flat.
US stocks fell into a correction, with the S&P 500 plunging 10% from a peak in mid-February. Trump has acknowledged the country faces "a period of transition" due to his attempt to radically rewire global trade, but dismissed the threat of a recession and downplayed the market turmoil.
Looking at economic data, both the consumer price index and producer price index came in lower than expected last week. Despite this good news, fresh US consumer sentiment data continues to be very weak, with inflation expectations hitting their highest levels in 30 years. Retail sales this morning also disappointed.
While fears remain that a trade war can lead to slower growth and faster inflation, markets will closely follow major central bank rate decisions this week. We have the Federal Reserve, Bank of England, and European Central Bank monetary policy meetings, where rates are expected to remain unchanged. All attention will be on the policymakers' take on current global developments and their economic projections.
