Week in Review

Protectionism Fears Intensify

A review of the week's top global economic and capital markets news. 


For the week ending 2 March 2018

  • Trump to announce steel, aluminum tariffs
  • China to abolish presidential term limits
  • UK rejects draft EU Brexit treaty
  • Italian election, German coalition vote awaited
  • Fed’s Powell testifies on Capitol Hill

As of noon Friday, global equities fell for the week on concerns that a rise in US protectionism could intensify global trade tensions. Also undermining equities are fears the US Federal Reserve will raise rates four times in 2018 rather than three. As of noon Eastern Time, the US 10-year Treasury note yielded 2.87%, a decline of 5 basis points versus a week ago, while the price of a barrel of West Texas Intermediate crude oil fell to $61.25 from $63 last week on rising US inventories. The Chicago Board Options Exchange Volatility Index (VIX) rose to 24 from 19.4.


US to impose new tariffs
US president Donald Trump said on Thursday that next week he will approve new tariffs on imports of steel and aluminum. His administration will impose 25% duties on imported steel and 10% duties on aluminum, he said on Thursday. Investors fear US protectionist measures could result in retaliation from trading partners, potentially disrupting the synchronized growth uptick. Additionally, inflation fears are intensifying, as the impact of the tariffs will raise input costs for steel and aluminum-consuming industries in sectors such as autos and construction. Many observers have noted that the tariffs are global in nature and do not specifically target China — the target of the president's ire regarding imbalanced trade since China’s direct steel exports to the United States are minimal. The administration counters that China routes steel and aluminum through third countries before exporting it on to the US, so a wide net must be cast. A formal announcement will come next week. Also this week, the market faced the possibility that leaving the White House soon will be highly-placed, market-friendly staffers who have been trying to restrain the president’s protectionist tendencies.

China scraps presidential two-term limit
Chinese state media this week reported that the Communist Party proposed a constitutional amendment removing the limit on a president serving more than two consecutive five-year terms. Officials cautioned that the shift does not necessarily mean that President Xi Jinping will serve beyond the end of his current term in 2023, though most observers expect that he will serve indefinitely.

May dismisses EU Brexit deal
British prime minister Theresa May wasted little time in rejecting a Brexit treaty proposal from the European Union this week. The proposal would require Northern Ireland to remain in the EU’s customs union and under the jurisdiction of the European Court of Justice. May said no British prime minister would ever agree to such an arrangement. The United Kingdom is scheduled to leave the EU in March 2019, leaving little time to conclude critical negotiations.

European weekend vote tallies eyed
While Italy heads to the polls for a general election on Sunday, more focus will likely be on Germany’s Social Democratic Party (SPD) as the party tallies postal votes on whether to ratify a proposed grand coalition with Angela Merkel’s Christian Democratic Union (CDU). The outcome is uncertain, and a failure to secure a majority of votes among the SPD rank-and-file could send Germany back to the polls in the months ahead if a government cannot be formed. Merkel has led a caretaker government since last fall after earlier talks with the Free Democrats and Greens failed. While Italy’s antiestablishment 5 Star Movement is expected to be the largest vote-getter on Sunday, it is unlikely to gain a majority. Party leaders have said that 5 Star will not take part in a coalition, so Sunday’s vote could be the beginning of a long process of coalition building by both the center-left and center-right blocs.

Fed’s Powell makes debut
US Federal Reserve chairman Jerome Powell made his first public remarks since taking office this week, testifying before the House Financial Services and Senate Banking committees. Markets interpreted Powell’s upbeat view on the economy as a sign the Fed may hike its policy rates four times in 2018 rather than the three hikes that Federal Open Market Committee members forecast at their December meeting.

US manufacturing gauge hits 13-year high
The Institute for Supply Management’s manufacturing index hit its highest level since 2004 this week, rising to 60.8 from 59.1. The data show a backlog of orders, suggesting a sustained period of strong manufacturing output in the months ahead. Manufacturing data from the eurozone, Japan and China all dipped modestly in February. Further upbeat figures were released by the Conference Board. Its consumer confidence index reached a 17-year high. US housing data were less robust in January, restrained by high prices, low inventories and rising mortgage rates. While the markets have been quite concerned about inflation, data from the US and the eurozone were benign. The Fed’s preferred inflation measure, core personal consumption expenditures, held steady at 1.5% — below the Fed’s 2% target. Eurozone inflation fell for a third straight month in February, to 1.2%, well below the European Central Bank’s target near 2%.


With 97% of constituents of the S&P 500 Index reporting, earnings are seen advancing 14.9% in Q4 2017 compared with the same quarter a year ago. The information technology, financial and energy sectors were the top contributors. Revenues are expected to rise 8.3% compared with a year ago.





Mon, 05 Mar


Service sector purchasing managers’ indices

Mon, 05 Mar


Retail sales

Wed, 7 Mar


Q4 gross domestic product revision

Wed, 7 Mar


Bank of Canada rate-setting meeting

Wed, 7 Mar

United States

Fed’s Beige Book

Thu, 8 Mar


Q4 GDP revision

Thu, 8 Mar


ECB rate-setting meeting

Fri, 9 Mar


February employment report

Fri, 9 Mar


February employment report


Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product. 

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Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg New; Financial Times; Forbes.com; CNNMoney.com; NBCNews.com. 

This content is directed at investment professionals only.

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