“The impact on the market from the strike on Syria…”

The first day of the week marks the first day of trading for the second quarter 2017 and the beginning of the month. Later in the week some important meetings and release of information are lined up such as the US non-farm payrolls, the summit between Donald Trump and Chinese President Xi Jinping at Trump’s Mar-a-Lago estate in South Florida and the Federal Reserve March meeting minutes.

The global stock markets on Monday were mostly higher due to positive reports on manufacturing data, for example the German DAX gained 0.2 percent to 12,342 while the FTSE 100 increased by 0.1 percent to 7326, while the Dow and S&P 500 futures were flat.

Meeting between US and Chinese Leaders

There was caution in the market due to a summit between Trump and his Chinese counterpart in Florida where certain issues were to be discussed Thursday and Friday amongst which are North Korea, trade and territorial disputes in the South China Sea. One of the items on Trump’s agenda is to put pressure on Beijing to do more to rein its nuclear-armed neighbour North Korea, which is working to develop missiles capable of hitting the US. The latter is the most pressing issue. In his first ever meeting Trump said a friendship has developed with his Chinese counterpart. Xi Jinping told Trump that there were a “thousand reasons” to make China-US relationship work, and there was no reason to break it. After defeats on his travel bans and the Obamacare repeal Trump wants to show progress countering North Korea’s nuclear threat and opening Chinese markets to more US goods in order to create more jobs.

The release of Federal Reserve Minutes from Last Meeting

The minutes of the last meeting, where it was decided to increase the benchmark lending rate by a quarter-point, will be thoroughly watched by the market for any discussion related to the reduction of the bank’s balance sheet. Bond purchases from 2008 to 2014 carried out with the intention to decrease the long-term lending rates has bloated the Fed’s balance sheet. The minutes show that all the officials see the economy as being at or near full employment and all voters believed inflation was still short of the Fed’s 2 percent target. Some participants also viewed an increase in equity prices in recent months along with prices of other risk assets such as emerging market stock, high-yield corporate bonds and commercial real estate. With regards to the balance sheet, participants generally preferred to phase out or cease the reinvestments of Treasury securities and agency mortgage backed securities at the same time. The decision to discuss the balance sheet was agreed to take place at subsequent meetings with the next FOMC which is set in Washington on May 2-3.

Oil and Commodities

While European Stocks started the second quarter with caution, oil and mining related stocks outperformed due to firmer commodities prices. Oil increased to a near one month high from signs of gradual tightening in global oil inventories and on concerns of a supply outage at a field in the UK’s North Sea. Oil held above $50 a barrel.

UK Services PMI Data

The UK services sector grew faster than expected in March and increasing costs prompted companies to increase prices at the fastest pace in 8 1/2 years. The UK services PMI data showed a rise to 55 from 53.3 in February, however, this does not seem enough to make up for the cooling off of the manufacturing and construction growth. Markit predicts economic growth of 0.4 percent in the first quarter which would be the weakest in a year. The pound rose 0.3 percent to $1.2473 after the report.

Dragi Comments

European Central Bank President Mario Draghi said that inflation in the euro area is not strong enough to move to a tighter monetary policy and said that “we have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook, which remains conditional on a very substantial degree of monetary accommodation”. The Euro dropped to the lowest since mid-March after Draghi spoke. The Euro was 0.1 percent lower on the day trading at $1.0653 at 10:38 Frankfurt time after falling as low as $1.0629.

The impact on the market from the strike on Syria

The US launched a missile attack against Syria after the regime of Bashar al-Assad killed many people with poisoned gas, an act which President Trump himself called it “an affront to humanity”. The action by the US was condemned by Russian President Vladimir Putin, who supports the regime of Bashar al-Assad. Trump’s move has caused an instant reaction across stocks, commodities and currencies and raised questions about Trump’s broader foreign and national-security strategy. Gold on the other hand is driving a strong rally in precious metals as it is a favoured asset in times of uncertainty for their fixed returns. Oil jumped more than 2 percent in New York and London the highest in more than a month with the Yen also advancing while the Russian ruble and the Turkish lira weakened.

US Jobless rate at Lowest since 2007

The unemployment rate fell to 4.5 percent from 4.7 percent and wage gains slowed to a 2.7 percent year-over year pace. The 98,000 increase in jobs followed a 219,000 rise in February. Although the payroll figures are the weakest since last May and represent a pullback from the first two months of the year, it may reflect that things are getting back to normal, with employment being healthy giving the Fed enough confidence to raise interest rates in March and forecast more rate hikes this year.

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