After a broad sell-off across many asset classes in February, volatility continued into March, with equity markets declining and government bonds rallying. Risk markets were impacted by the prospects of a US-China trade war with President Trump continuing to push his ‘America First’ philosophy. Emerging market and developed market equities fell, with emerging markets marginally outperforming. US equities fell 2.6% during the month, taking Q1 2018 returns to -0.9%. A key contributing factor seemed to be President Trump’s imposition of tariffs on imports of Chinese steel and aluminium and proposals for further tariffs on a wide range of goods.

China immediately responded, imposing tariffs on several US imports, including wine. This led to worldwide concerns of a potential trade war, which could have implications for global growth. In addition to this, tech stocks, among the strongest performers in 2017, suffered sharp share price declines. This followed a serious data breach at Facebook which led to a series of governments seeking to tighten the loose regulation of companies in the sector, while tax authorities are seeking to impose more effective taxes.

Financial markets had a turbulent and more volatile month in February, with almost every asset class falling while the US Dollar rose on a trade weighted basis. Notably, after a record streak of fifteen consecutive monthly gains, the S&P 500 fell 3.7% in February. After a particularly strong January, global emerging market equities underperformed developed markets, although emerging market equities continue to outperform developed markets year to date. Global bonds suffered with yields generally rising amidst a better than expected jobs report in the US.

US markets fell sharply early in the month, with the S&P 500 falling 6.2% in the first three days of trading. This followed a strong jobs report, with wage growth beating expectations at 2.9%. With the tightness in the labour market yet to feed into wage growth and subsequently headline inflation, investors have been focusing on wage growth figures in anticipation of the trend reversing. The better than expected data indicated this may finally be the case and investors adjusted their inflation expectations and subsequently their forecast for the timing of future US rate hikes. This initially put bond markets under pressure, before concerns spread to equity markets.