Happiness in short supply at the White House

Last week the UN World Happiness Report 2018 revealed that Finland is the world’s happiest nation. In contrast, the US slipped five places to 18th in the global ‘happiness’ rankings. The S&P500 fell 1.6% over the week in sympathy, amid fears of rising trade friction and fallout from the political merry-go-round at the White House. UK shares fell too.

It’s no secret that the White House is not currently the world’s happiest workplace. Last week’s departures included Secretary of State Rex Tillerson and Trump’s popular personal aide John McEntee. The political turmoil further heightened when former FBI deputy director Andrew McCabe was sacked on Friday evening little more than 24 hours before he was due to retire. Stay tuned for the next dramatic instalment… 

Mixed signals from the US economy also weighed on market sentiment, with weaker than expected retail sales raising investor concerns that the US consumer may be flagging despite recent tax cuts. News that the US is pressing China to reduce its bilateral trade surplus by $100 billion also did nothing to ease market anxieties about rising global trade tensions.

Protectionism looks set to be a recurring theme this week, with trade sure to be a key topic when dignitaries arrive at the G20 summit starting today in Buenos Aires. The meeting will provide a further opportunity for governments to lobby the US for an exemption to President Trump’s steel and aluminium tariffs which are due to take effect this Friday.

FTSE All-Share

-0.88%

-2.84%

1.42%

1.59%

FTSE 100

-0.81%

-3.38%

0.97%

0.27%

FTSE 250

-1.34%

-0.90%

3.19%

6.51%

FTSE SmallCap

-0.30%

0.24%

3.27%

9.26%

S&P 500

-1.58%

-1.26%

8.23%

4.28%

Euro Stoxx

-0.66%

-1.60%

0.88%

8.43%

Topix

1.67%

-1.47%

9.36%

6.89%

Shanghai SE

-1.30%

0.08%

-1.49%

-1.94%

FTSE Emerging Index

-0.26%

4.61%

7.27%

11.14%

Source: FE Analytics, data sterling total return to 16 March

Happy days are over for UK-Russia relationship 

According to the UN’s global ‘happiness’ survey, the UK sits one place below the US in 19th positon while Russia languishes at number 59. And it’s unlikely the mood of either country’s citizens will have been enhanced by the escalating diplomatic crisis that has followed the poisoning of Sergei Skripal and his daughter Yulia on 4 March with a Russian-made nerve agent.

The stakes were raised further when the UK government said Sunday it has evidence that Russia has been developing nerve agents over the past decade for use in assassinations.  Russia responded in kind to last week’s expulsion of its 23 diplomats and there currently seems little sign of a resolution to the crisis. The deteriorating relationship between the two nations certainly weighed on market sentiment last week and looks set to do so again this week.

Will the Fed be happy to raise rates?

Wednesday will be a big day for Jerome Powell as he chairs his first meeting of the Federal Open Market Committee. And he is widely expected to announce a 25 basis point hike when he subsequently plays host to his first news conference after the meeting. The bigger question, though, relates to the Fed’s future intentions. Most economists still expect no more than three in total this year, although investors may get worried with some analysts bumping up their estimates to four. Similarly, markets will be closely watching to see if the 2019 estimate stays at two rate hikes or is increased to three. Expectations remaining unchanged for both years after the Fed meeting would probably be the best scenario for equities.

On Thursday attention switches to the UK, with the Monetary Policy Committee due to announce its latest decision. Although a rate increase in May is firmly on the cards with more to follow in the second half of 2018, the move is unlikely to come as soon as this meeting.

Whatever happens to interest rates this week, however, we remain confident that economic conditions in the US (and the global economy as a whole) will support equity markets this year. Although Treasury yields are expected to continue climbing, it’s likely to be gradual and not with a speed that could destabilise financial markets. Across the G7, unemployment, personal income and industrial production are all still accelerating away from their average long-term levels, which means we remain in the expansion phase of the business cycle.

Bonds

UK 10-Year yield 1.43%
US 10-Year yield 2.85%
Germany 10-Year yield 0.57%
Italy 10-Year yield 1.98%
Spain 10-Year yield 1.37%
 

Economic data and companies reporting for week commencing 19 March

Monday 19 March
EU: Euro area Jan trade balance

Quarterly results:  Volution Group

Tuesday 20 March
UK: Feb. CPI, PPI
EU: Euro area March consumer confidence; German March  ZEW business confidence
US: Philadelphia Fed non-manufacturing index
Japan: March Reuters Tankan survey of business activity

Full-year results: 888 Holdings; BH Macro Ltd.; EnQuest; The Gym Group; Hansteen Holdings; John Wood Group
Preliminary results: Mears Group; Polypipe Group
Quarterly results:  Volution Group

Wednesday 21 March
UK: Feb labour report
US: Feb. existing home sales

Full-year results: Cambian Group; Empiric Student Property; International Public Partnerships Ltd;  Kingfisher; UK Commercial Property Trust Ltd; Vectura Group; 
Preliminary results: Ferrexpo; Ultra Electronics Holdings; Xaar
Quarterly results: Softcat

Thursday 22 March
EU: Euro area March flash manufacturing & services PMIs; German IFO business conf.
UK: Feb retail sales
US: March flash manufacturing & services PMIs

Full-year results: Allied Minds; JPMorgan U.S. Smaller Cos. Investment Trust; Lamprell; The North American Income Trust; Regional REIT Ltd; SOCO International; Ted Baker
Preliminary results: Sanne Group
Quarterly results: Carnival

Friday 23 March
Japan: Feb. core CPI
US: Feb. durable goods orders, new homes sales

Full-year results: Fidelity Japanese Values; John Laing Infrastructure Fund Ltd; Next; Starwood European Real Estate Finance Ltd
Preliminary results: Henry Boot
Quarterly results: Smiths Group

Julian Chillingworth
Chief Investment Officer