Global Trade War Fears Keep Financial Markets on the Edge

News that the Trump administration was looking into a tough trade package against China weighed on global financial markets this week.

The above trade package could include indefinite tariffs and investment restrictions. Trump could reportedly impose tariffs on US$ 60 billion of Chinese goods.

Disagreeing with Trump's views, International Monetary Fund (IMF) Managing Director Christine Lagarde urged countries to avoid being sucked into a global trade war in the wake of US tariffs on steel and aluminum.

Last week, US President Donald Trump followed through on his pledge to impose stiff tariffs on imported steel and aluminium, while excluding Canada and Mexico and leaving the door open to sparing other countries on the basis of national security.

He also warned there would be more tariffs coming, saying he plans to proceed with what he has called "reciprocal taxes" on imports from countries that charge higher duties on US goods than the US now charges on their products.

One of the recent editions of Equitymaster Insider explains how the above salvo could have grave consequences for global trade as well as the stock markets. You can read the same here (requires subscription).

In other news, Japan's industrial production declined more than estimated in January. Data from the Ministry of Economy, Trade and Industry showed that Industrial production fell a seasonally adjusted 6.8% month-over-month in January. This was more than the 6.6% decrease reported earlier and a growth of 2.9% seen in December.

Shipments contracted 5.7% over the month and inventories dropped 0.5%.

On a yearly basis, industrial production growth eased to 2.5% in January from 4.4% in December.

Data also showed that capacity utilization declined sharply by 7.3% monthly in January, reversing a 2.8% rise in the previous month.

Last week, the Bank of Japan (BoJ) kept its monetary stimulus unchanged and also stuck to its upbeat view on the economy. However, the above data has led to concerns about the growth of the economy. What remains are many issues that can hamper Japan's economic growth going forward.

It would be interesting to see what impact the central bank's ultra-easy money policy will have on the economy going forward. Meanwhile, we'll keep you updated on all the recent developments in this space.

Global financial markets traded on a mixed note during the week.

Worries about a global trade war, particularly between the US and China, kept Asian markets on the edge. The Chinese index was down 1.1% in the week gone by. Even the Indian equity markets were down 0.4% after the exit of a key ally from the ruling coalition of the Modi government upped the political risk. However, market indices in Hong Kong, Japan and Singapore managed to post weekly gains.

The US markets were down 1.5% in the past week despite upbeat economic data. The industrial production rose 1.1% in February, its fastest pace in four months. Even the University of Michigan's consumer sentiment index jumped to a 14-year high in March. However, major personnel changes in the Trump administration upped US political worries. These included the departure of Rex Tillerson as secretary of state, and the naming of Lawrence Kudlow as the director of the National Economic Council.

Indian Indices Ends Marginally Down

Back home, the Indian indices ended their weekly session on a negative note. The BSE Sensex was down 0.39% for the week, while the NSE Nifty was down 0.31%.

Telecom (+2.62%) and Infra (+0.63%) were the biggest gainers for the week. Energy (-1.37%) and IT (-0.69%) were the biggest losers.

Andhra Pradesh's Telugu Desam Party moved a no-confidence motion against the government in the Lok Sabha on Friday, after party president N Chandrababu Naidu announced the party's exit from the National Democratic Alliance. This acted as a double whammy for the BJP that lost key by-polls in Uttar Pradesh and Bihar last week. On Friday, the BSE Sensex fell by 509 points or 1.5% to end at 33,176. IT and metal stocks were the major losers whereas telecom and consumer durable stocks were among the gainers during the week.

In the news from the banking sector, Reserve Bank of India (RBI) Governor Urjit Patel said that it had very limited authority over state-run banks and called for reforms to give the regulator more powers to regulate state lenders in the wake of the recently unfolded US$ 2 billion fraud.

The above comments by Urjit Patel follow those of Finance Minister Arun Jaitley who questioned the regulator's role in the wake of the PNB fraud.

Note that the recent fraud at Punjab National Bank in conjunction with the diamond merchant Nirav Modi has put the spotlight on the growing bad loan problems in Indian banks. It has also brought to the fore the painful issue of willful defaulters especially after the Vijay Mallya fiasco.

In the news from pharma space, Strides Shasun share price is witnessed buying interest this week as its wholly owned subsidiary Strides Pharma Global received USFDA approval for an HIV drug.

The company received approval of Efavirenz tablet USP, 600 mg, a generic version of Sustiva Tablets of Bristol-Myers Squibb. The drug is indicated for treatment of Human Immunodeficiency Virus Type 1 (HIV-1) infected adults and adolescents.

The US market for the above drug is approximately US$ 115 Million and Strides is only the second generic company to get the approval for the product under the Para IV route.

As per the news, the product will be manufactured at the company's oral dosage facility in Bengaluru and will be marketed by Strides Pharma.

Nifty 50 Index Trades Volatile
Nifty 50 Index Trades Volatile

The Nifty 50 Index traded on a volatile note during the week.

On Monday, it opened the session gap up and rallied nearly 200 points. The positive momentum continued until the next day where the index hit a high of 10,478. But it couldn't sustain its upward trend for long and slipped lower for the remainder of the week.

Today, the index is down 165 points, finally closing the weekly session 0.31% down.

Last week, the index found a strong support near 10,000 - 10,100 zone (previous resistance now support). The 200 day moving average (DMA) also acted as a good support for the index.

It bounced up from these support levels, but it is now back near the 200 DMA.

So can the index again find support from the 200 DMA?

Or will it continue to slip lower? In that case, 10,000 is the level to watch out for.

COMMODITIES

Gold Trades on a Negative Note

Gold traded on a negative note during the week. On Monday, it opened the session up but slipped down to end the session negative. However, the commodity witnessed some buying interest during the mid-week on back of weaker dollar following US Secretary of State Rex Tillerson's sudden dismissal, which invigorated concerns of protectionist policies hampering global risk appetite. The yellow metal continued its down move towards the end of the week. Finally, on Friday, gold continued to trade negative and ended its weekly session with 0.58% loss.

Gold Ends in the Red

Crude Traded in an Uptrend

Crude oil traded in an uptrend during the week. On Monday, it opened the session gap up, but couldn't sustain up for long and slipped lower to trade dull until next trading session. The commodity fell due to rise in US crude output. During mid-week, the black gold witnessed some buying on back of strong data from China. On Friday, the commodity witnessed some more buying interest and ended its weekly session with gains of 0.82%.

Crude Oil Ended the Week a Percent Up

CURRENCIES

Dollar Witnesses Selling Pressure

The dollar traded on a negative note during the week. On Monday, it opened its weekly session lower and continued to trade down until mid-week. The dollar fell against the rupee on better-than-expected inflation numbers and mild selling of the greenback by exporters amid sustained foreign capital inflows. It recovered a bit towards the end of the week but ended its weekly session with loss of 0.42%.

Dollar Trades on a Tepid Note

Commodities 09th Mar 16th Mar % Change
Gold/10 gms 30,401 30,224 -0.58%
Silver/kg 38,947 38,358 -1.51%
Crude Oil/barrel 4,017 4,050 0.82%
Natural Gas/mmBtu 178.10 175.10 -1.68%
Currencies 09th Mar 16th Mar % Change
USD / INR 65.30 65.02 -0.42%
EUR / INR 80.35 80.17 -0.23%
GBP / INR 90.26 90.76 0.56%
JPY / INR 61.20 61.54 0.56%

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