MENA MARKETS REVIEW: MARCH 2018

Kuwait: April 08, 2018

HIGHLIGHTS

• President Trump’s announcement of import tariffs has sparked fears of a trade war and triggered a Global markets sell-off
• The US Federal Reserve raised interest rates by 25 bps and increased its forecast of economic growth
• Brent Oil is up 6.8% in March, its best performance year to date
• In the GCC five out of six nations raised their key policy rates by 25bps except for Oman
• Recent developments with the FTSE Russell Index reclassification has boosted Saudi Arabia and Kuwait’s equity markets

GLOBAL ECONOMY REMAINS ON FIRM FOOTING DESPITE RISK OF PROTECTIONISM IN THE US Global economic conditions remain largely healthy, though recent protectionist moves by the US increase the risk of costly trade wars. Equities, which had already been rocked by concerns of accelerated monetary policy tightening in February, were hit again in March after the US imposed tariffs on Chinese goods. As a result, the S&P 500 remained in correction territory having lost over 10% of its value from its late-January peak. Nonetheless, we do not think a trade war is likely at this point, and economic fundamentals remain robust, with a further boost expected from fiscal stimulus in the US. GLOBAL EQUITIES Global equities closed the month of March broadly in the negative. The MSCI All Country World Index dropped 2.4% closing Q1 2018 in the red down 1.4%. US equities continued their downward trend as both the S&P 500 and Dow Jones Indices posted losses of 2.7% and 3.7% respectively. The negative performance for the past two months has wiped out the gains of January, with Q1 2018 performance at -1.2% for the S&P 500 and -2.5% for the Dow Jones Index. The Global markets sell-off and subsequent volatility were triggered by the announcement by President Trump of his intention to impose tariffs steel and aluminum imports to the US. This was mostly directed at China, which threatened to do the same on a list of US imports. This sparked fears of a global trade war. Adding to the worries was the resignation of the top white house top economic advisor and the replacement of Rex Tilerson signaling a more aggressive US foreign policy. Moreover, and as expected, the Fed increased rates by 25 bps in its first meeting under Chairman Powell. It also increased its forecast of economic growth over the coming years and indicated a slightly steeper rate hike path for 2019 and 2020. Mr. Powell also indicated that he expects inflation to reach the Fed’s target of 2.0% over the medium term.

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