With Donald Trump in office there exists huge volatility in terms of politics, foreign diplomatic relations, and trade-related policies. One day the US is on the brink of a "fire and fury" war with North Korea, then the next day Trump and North Korean leader Kim Jong Un agree to meet for talks. One day the US shocks the world by announcing steep steel and aluminum import tariffs, the next day trading partners are invited to negotiate lower tariffs. One day Rex Tillerson is US Secretary of State, the next he is fired by Trump through Twitter.
Although on the one hand markets are becoming somewhat used to Trump's style (usually bombastic and aggressive at first before scaling down his tone), the subsequent volatility is felt across markets.
After recently seeing top adviser Gary Cohn leave the White House (who was considered someone that could discourage some of Trump's more aggressive economic decisions), Rex Tillerson was fired by Trump as US Secretary of State Rex on Tuesday (13/03) and was replaced with CIA Director Mike Pompeo. Pompeo is considered a more loyal foot-soldier to Trump, while Tillerson was a moderate who sought to emphasize the United States' strong ties to its allies. However, ahead of US-North Korea talks, it seems clear that Trump wants someone at the Secretary of State who shows more "muscular" foreign policy and who is more willing to listen to Trump. The US president informed media on Tuesday that he disagreed with Tillerson on various matters, including the Iran deal.
Meanwhile, one day earlier Singapore-based Broadcom's proposed USD $117 billion buyout deal of Qualcomm was blocked by the Trump administration on national security grounds. The deal would have been the biggest tech acquisition in history. Bloomberg reported that Trump was concerned that a the takeover would have allowed Broadcom to weaken Qualcomm and therefore strengthen China-based Huawei. Meanwhile, the BBC reported that Trump's decision was also a protectionist one, considering every major country around the globe is involved in a race to deliver 5G technology. By allowing Qualcomm to slip into the hands of a foreign country, the US would be left behind. On Tuesday Qualcomm was the worst-performing stock in the S&P 500, plunging 5 percent.
Combined the Broadcom blockage, the Tillerson ouster, and the steel & aluminum tariffs trigger concerns that the Trump administration is adding fuel to the fire in a battle versus China. Last week Trump signed for a 25 percent tariff on steel imports into the USA, and a 10 percent tariff for aluminum imports (Canada and Mexico being exempted).
Positive news that came from the USA was that US inflation was tame in February 2018, rising by 0.2 percent (m/m), in line with expectations. Last month concerns about sharply rising US inflation emerged after US wages had soared. This could then lead to a faster monetary tightening strategy of the Federal Reserve.
Despite the positive opening on the back of tame inflation, by the end of the day the S&P 500 had fallen 0.6 percent, while the Dow Jones Industrial Average and Nasdaq Composite had declined 0.7 percent and 1 percent, respectively. As a result, Asian stocks are under pressure on Wednesday morning (14/03).
Better-Behaved US Inflation (February data):
• CPI rises 0.2 percent vs. 0.5 percent in January
• Core CPI up 0.2 percent vs. 0.3 percent in January
• CPI up 2.2 percent (y/y) vs. 2.1 percent in January
• Core CPI unchanged at 1.8 percent (y/y)