Global market performance in February contrasted sharply with the performance in January due to the volatility in markets following the selloff in US equities which spread across to other markets globally. Markets have recovered to an extent from the selloff over the course of the month, but the recovery was thereafter affected by concerns about a trade war and whether the US Federal Reserve will hike rates more than three times this year.
President Trump deciding to move ahead with relatively higher tariffs on imports of steel and aluminum, has raised the possibility of a global trade war if China, the EU and others decide to retaliate with tariffs of their own against US exports. Such a scenario carries the risk of denting the current optimism on global growth in 2018.
Meanwhile, Jerome Powell who took over as the new Fed Chairman during the month delivered his testimony to Congress on the Fed’s policies. He highlighted the requirement to balance between the need to prevent the US economy from overheating and the need to move towards the 2% inflation target. In line with this, markets widely expect the Fed to hike policy rates at its March meeting.
Europe saw the confirmation of a new grand coalition government in Germany and the prospects of a hung parliament in Italy, as anti-establishment parties surged leaving no party with a governing majority. Uncertainty in Italy could weigh in on European markets in the weeks ahead as coalitions talks proceed, although no major risk is seen yet.
Net Portfolio outflows of about $4.5 billion were recorded in the 21 emerging market economies monitored by the Institute of International Finance (IIF). The net outflows were concentrated in equities with net inflows to bonds offsetting it to an extent. While EM equities did fare better than developed market equities during the selloff, analysts have pointed out that the MSCI EM Index has gone through four different trends in the last nine weeks. This makes it hard to ascertain a potential direction for EM equities in 2018.
Brent crude prices eased from the $70 mark in February and moved within the $60-70 range. Prices reached a low of $62.59 on the 12th. This was largely due to concerns about rising crude output, increases in US shale oil rigs and build ups in US stockpiles. In early March, oil prices have been weakened by concerns of a trade war affecting global growth following the US tariff proposals.
Source: Frontier Blog