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Rising US protectionism knocks sentiment

March 2018

Investor sentiment during March was marred by mounting levels of US protectionism. President Donald Trump announced tariffs on steel and aluminium imports, and also revealed plans to impose tariffs of up to US$60 billion on imports from China. Equity indices around the world dipped sharply amid fears that an escalating trade war could undermine economic growth. 

  • US interest rates rose by 25 basis points
  • Northern Ireland remained a sticking point for Brexit negotiators
  • The ECB dropped its commitment to expand its asset purchase programme if necessary 

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Investor sentiment during March was marred by mounting levels of US protectionism. President Donald Trump announced tariffs on steel and aluminium imports, and also revealed plans to impose tariffs of up to US$60 billion on imports from China. Equity indices around the world dipped sharply amid fears that an escalating trade war could undermine economic growth. 

“Equity indices around the world dipped sharply amid fears of an escalating trade war”

The US subsequently tempered its controversial decision by temporarily exempting some key players – including EU member states – from the tariffs on steel and aluminium. President Trump will decide by 1 May whether this exemption should be permanent. With regard to China, however, the White House’s relationship appears set to sour further as China warned it would “fight to the end to defend its legitimate interests with all necessary measures”.

As expected, the US Federal Reserve (Fed) raised interest rates in March, increasing the key federal funds rate by 0.25 percentage points to a range of 1.5% to 1.75%. The Fed also indicated that it was prepared to instigate further tightening if necessary. The US economy grew by 2.9% year on year during the first quarter of 2018, compared with earlier readings of 2.6% and 2.5%. The Dow Jones Industrial Average Index fell by 3.7% during March.

In the UK, the Chancellor of the Exchequer’s Spring Statement included an improved forecast for the UK’s economic growth during 2018; despite this, the UK’s prediction of 1.5% remains lower than the growth forecasts of many other leading economies. Meanwhile, borrowing is forecast to fall in every fiscal year from 2018/19 to 2020/21. Elsewhere, the UK and EU managed to reach agreement on “a large part” of the terms of the Brexit transition, but the issue of Northern Ireland remains a sticking point. The FTSE 100 Index fell by 2.4% over March as a whole. 

The European Central Bank (ECB) dropped its previous longstanding commitment to increase the scale of its bond-buying programme if necessary. The move suggested that ECB policymakers are becoming more sanguine about the eurozone’s economic prospects. Nevertheless, the ECB was at pains to emphasise its continued support for the region’s economic recovery, pointing to the fact that eurozone interest rates remain exceptionally low and the ECB is continuing its bond-purchase programme of €30 billion per month. The Dax Index fell by 2.7% in March, while the CAC 40 Index dropped by 2.9%.


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