NBK Capital Global Markets Commentary – March 2018

Kuwait: April 5, 2018

Global Equities continue their negative performance closing the first quarter in the red

Global equities closed the month of March broadly in the negative. The MSCI All Country World Index dropped 2.4% closing Q1 2018 in the red down 1.4%. US equities continued their downward trend as both the S&P 500 and Down Jones Indices posted losses of 2.7% and 3.7% respectively. The negative performance for the past two months has wiped out the gains of January, with Q1 2018 performance at -1.2% for the S&P 500 and -2.5% for the Down Jones Index. The Global markets sell-off and subsequent volatility were triggered by the announcement by President Trump of his intention to impose tariffs steel and aluminum imports to the US. This was mostly directed at China, which threatened to do the same on a list of US imports. This sparked fears of a global trade war. Adding to the worries was the resignation of the top white house top economic advisor and the replacement of Rex Tilerson signaling a more aggressive US foreign policy. Moreover, and as expected, the Fed increased rates by 25 bps in its first meeting under Chairman Powell. It also increased its forecast of economic growth over the coming years an indicated a slightly steeper rate hike path for 2019 and 2020. Mr. Powell also indicated that he expects inflation to reach the Fed’s target of 2.0% over the medium term.

In Europe, the Stoxx Europe 600 posted a loss of 2.3% in March with the Q1 2018 performance coming in at a negative 4.7%. The two largest markets within continental Europe also performed poorly during March, with the DAX 30 Index shedding 2.7% and the CAC 40 Index shedding 2.9%. Over in Italy, and as the election didn’t result in a clear winner, negotiations are underway to form a coalition government. On the monetary policy front, the ECB’s Mario Draghi assured market participants of continued monetary easing well into the year-end at least. In terms of economic activity, the Eurozone’s Markit Manufacturing PMI and Services PMI for March, on a preliminary basis, came in lower than previous readings although remain above 50 at 56.6 and 55.0, respectively.

In the UK, the FTSE 100 posted a loss of 2.4% in March, marking its third consecutive month of poor performance. On a year to date basis, the index is down 8.2%, making it one of the worse developed markets in terms of performance. The Bank of England held interest rates at 0.50% but did signal tightening is not far out. On Brexit, the UK has agreed with Europe to a 21-month Brexit transition beginning in March 2019, brining relief to corporations that a hard exit is off the table. The UK economy has shown slight improvement in terms of consumer confidence with Gfk Consumer Confidence reading coming in at -7 compared to the previous reading of -10. Also, year on year GDP for Q4 was flat at 1.4% compared to the previous quarter’s reading.

Japan’s Nikkei 225 continued its negative performance for the second month running. In March, the index was down 2.8% bringing the Q1 2018 performance to a negative 5.8%. During the month, the Bank of Japan maintained its key interest rate at 0.1% while holding overall policy steady. Japan’s Nikkei Manufacturing PMI for March came in at 53.1, just under the previous month’s reading of 53.2.

In terms of Emerging Markets, the MSCI Emerging Market Index posted a loss of 2.0% in March, its second month in a row with negative performance. On a year to date basis, the index is still positive at 1.1%, due to the stellar performance early in the year. China’s Shanghai Composite Index dropped 2.8% during the month, bringing its Q1 62018 performance to -4.2%. South Korea’s KOSPI 200 Index was slightly positive up 0.6% although on a year to date basis the index is down 3.1%. China has responded to US tariffs by introducing its own set of tariffs on US products. Over the course of the month, the US Treasury has indicated that both governments have been in negotiations to avoid a trade war. In China, the Non-Manufacturing PMI came in slightly higher than the previous month at 54.6 while the Caixin Manufacturing PMI registered a slight drop from 51.6 to 51.0.

Brent Oil, unlike equities, ended March in the green up 6.8%. Year to date, March has been the best month in term of performance, with Q1 2018 closing up 5.1%. During the month, Brent prices fluctuated between a high of USD 71.05pb on March 26 and a low of USD 63.19pb on March 1. Brent performed well on the back of an unexpected draw on crude inventories in the US, talk of a long-term cooperation between OPEC and Russia, and on the back of a continued weak dollar. Gold also closed in the green in March slightly up 0.5% with year to date performance up 1.7%.

GCC equities recovered following last month’s losses posting gains of 3.9% as measured by the S&P GCC Index. This was mainly driven by Saudi Arabia, up 6.1%, followed by Kuwait, up 0.43%, given the recent developments with the FTSE Russell stock market status upgrades. The rest of the GCC equity markets ended the month in the red. The worst performing index was Oman’s MSM 30 Index down 4.6%, followed by Dubai down 4.2%, Bahrain down 3.8%. Qatar and Abu Dhabi retreated by 0.9% and 0.3% respectively. MENA equities, as measured by the S&P Pan Arab Composite Index, also recovered in March up 3.5% with Egypt’s EGX 30 registering significant gains of 12.8%.