Having briefly reached the once elusive height of 7000 for the first time in the spring of 2015, the FTSE 100 Index remained above that level for the whole of 2017 as the bull market entered its 9th year. The index peaked at 7778 on 12th January but in a matter of only ten weeks has dropped 11%; 3.5% of the fall coming during last week, alone.
There are two main reasons for the current market volatility. Firstly, and probably most damaging, is the trade war which has now developed between the US and China. Further to Donald Trump’s imposed tariffs on steel and aluminium imports, the President has now ordered new 25% tariffs on $50bn of Chinese imports, following an investigation in to intellectual property theft; a long-standing bone of contention. The US also plans to impose new investment restrictions and take action against China at the World Trade Organisation. In response, China has imposed tariffs on just $3bn worth of US imports, but has vowed to ”fight to the end” and “not recoil from a trade war.”
Secondly, both the Federal Open Market Committee (FOMC) in the US and the Monetary Policy Committee (MPC) in the UK made decisions on interest rates. The US central bank raised the federal funds rate by 0.25% to a range of 1.5-1.75% due to the rapidly improving economy, low unemployment and a predicted rise in inflation. GDP growth for this year and next has been revised upwards with it moderating after 2020. The committee announced there would be two more rate rises this year, and a further three in 2019. The MPC kept UK interest rates at 0.5%, although two members of the committee backed an increase. However, with British workers’ pay rising at its fastest pace in more than two years, the expectation is for a rate rise in May with a likely further increase before the end of 2018; this is despite inflation falling to a seven-month low of 2.7% in February, down from 3% in the previous two months.
EU leaders have approved guidelines for the negotiation of future relations with the UK, post-Brexit, clearing the way for the next phase of Brexit talks. Britain has also secured a 21-month transition period to take place from March 2019, when the UK officially leaves, until the end of 2020; this should lessen the impact of Brexit for exporters.
Elsewhere, Facebook came under pressure to explain how data collected on 50 million users was exploited for political gain, following claims that consultancy firm, Cambridge Analytica, used the leaked information to help Donald Trump win his presidency. Facebook CEO, Mark Zuckerberg, admitted that the company had made mistakes and has been summoned to appear before US Congress.
