Heading into the new trading week, investors across different asset classes feared that the U.S.-led strike on Syria would become the new catalyst to sell risk assets. However, Saturday’s operation, that also included the U.K. and France was a limited one, and intended to be a one-off as President Trump declared "mission accomplished."
Friday’s steep declines in the markets were driven by weak employment report and a war of words between the United States and China, but seemed to have been shrugged off in Asia trade. While trade tensions and geopolitical risks are likely to keep the appetite for risk in check, investors will have new information to digest this week, particularly earnings from big banks and U.S. inflation data.
The fall in tech stocks and escalating trade tensions continued to rattle markets after the Easter break. The S&P 500 fell 2.2% on the first trading day of the second quarter, sending the Index back into correction territory (a more than 10% fall from its peak).
So far, China’s response has only been on the aluminum and steel tariffs, announced by the White House last month, and not on the proposed $60 billion in annual tariffs against Chinese products. This shows Beijing is unwilling to enter a trade war with the United States, knowing that it has more to lose than to win. However, trade dispute will continue to dominate investors’ decisions heading into Q2.
Financial markets remain on high alert as the U.S.-China trade war fears are providing the needed incentive for bears to take control. Friday’s sell-off in U.S. equities was ugly, after President Trump announced plans to impose tariffs on up to $60 billion of Chinese imports. The new proposal dragged the S&P 500 down by 2.1% and sent the Dow Jones Industrial Average into correction territory (a 10% fall from its 2018 peak). It was the worst week for the S&P 500 since January 2016 and the fourth worst performance since 2010.