Markets started the second quarter in no mood for jokes. Tesla’s stock fell by 7% after its founder, Elon Musk, tweeted an April Fool’s Joke about the company being bankrupt and out of cash. It may have been a little too convincing given the company’s recent woes.
March provided little respite from February’s renewed market volatility, as the S&P 500 saw 8 days of swings by at least 1% up or down (in contrast, there were only 10 such days in the 13 months to the end of January 2018, and February had 12 such days). Newsflow was dominated by saber rattling on the trade war front – US President Trump imposed tariffs on steel and as we write, China had retaliated by imposing tariffs on US food products – as well as departures from the White House. In Europe Brexit woes continued to stoke tensions, while tensions between European Union countries and Russia mounted in the face of an alleged poisoning of a Russian double agent. In Asia things were quieter as a détente of sorts seemed to settle on the Korean peninsula for now.
Markets were weak across the board in March, with the FTSE 100 declining for three months in a row, to end the quarter down -7.2% in local terms, while the S&P 500 saw a second monthly decline (-2.5%) to bring the year to date to slightly negative (-0.8%). In Europe banks took the sharpest hit (falling -6.2%), but other sectors fell by less – the DJ Stoxx lost 2% on the month to end the quarter -4%. Emerging Markets remained quite resilient, falling only 2%, and remain slightly positive for the year. The sheen seems to have come off the high growth tech sector, with negative press for Facebook and Amazon, although Spotify’s triumphant IPO at the beginning of April seemed to buck the trend.
The US Fed raised rates (to 1.5-1.75%), as expected, in March for the sixth time since the GFC, citing a strengthening economic outlook as it raised its 2018 GDP growth projection to 2.7% from 2.5%. The move was largely discounted in by markets, but the tone of the announcement suggested that the pace of rate rises might be more aggressive, with many commentators now expecting 4 in 2018 and a further 4 in 2019. US Treasuries actually gained on the month, perhaps reflecting a demand for safe assets amid the equity market weakness and EM bonds remained solid winners, with positive numbers across most regions. The USD saw ongoing weakness against the Euro and Sterling, although gained against the resource heavy AUD and CAD. Copper saw weaker while oil gained by over 5%.