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Trump’s trade war trumped by Facebook fiasco!

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Data for week commencing 26 March 2018

Australian shares on Thursday finished the March quarter with the worst performance since the GFC, despite our major banks having a bit of a comeback.

The S&P/ASX 200 index slipped 30 points (or 0.52%) to 5759 on the final session before the Easter break, bringing the losses for the week to 68 points, and for the year, so far, to 306 points (or 5%). Fairfax reports: “Investors have only suffered two worse March quarters over the past 25 years – a 15% plunge in 2008 and a 6.3% cent loss in 1994.”

The Royal Commission plus President Trump’s tariff troubles, followed by the Facebook fiasco, have created the headwinds for the quarter.

Westpac lost a huge 8.8% over the quarter, while NAB dropped 3.8% and the market wasn’t helped by Telstra, which now has slumped to $3.14, which is a share price not seen for six years!

AMP’s Shane Oliver thinks the greatest negative for our market has come from overseas. He says our recent company reporting should have been good for our market but the Trump issues, plus the good economic performance and its likely impact on interest rates, haven’t helped stocks beat gravity – my descriptive words, not his, but I got his message right.

On Tuesday, technology shares weighed on Wall Street and then our market, as Facebook shares fell by 4.9% on a broker downgrade by Bank of America Merrill Lynch. News that CEO Mark Zuckerberg would testify in front of US Congress due to the data privacy scandal didn’t help the market. On the same day, Twitter fell 12% after Citron Research said it was short the stock. All data-dependent stocks look vulnerable to future regulations that would cut revenues and add to costs.

On Tuesday, the Dow was off 344 points and the news didn’t get better until Thursday, when profit-takers and dip buyers started showing faith in the likes of Facebook. Late last week, the company was around $166 and saw its share price plummet to $149 on Monday, when the whole data abuse story raised doubts about the company’s future revenues, as well as costs in data-protecting laws come down the pike.

Ironically, US shares managed to rise 2% over the week, paring their loss in March to 2.7%, while we dropped about 4.2%. The difference has to be put down to the witch hunt, which is the Royal Commission into our banks, and then Bill Shorten’s initial ‘bright’ idea to kill all tax refunds to all retirees on the assumption they must all be rich!

The good news of the week was the apparent giving of ground by China to President Trump. Reports that China had offered to buy more semiconductors from the US to help cut its trade surplus with the US boosted stock market optimism. Another plus was the news that the US reportedly asked China to slash tariffs on US autos and provide greater access to the Chinese financial sector.

Shane Oliver says the whole tariff tantrum was over the top.

“The initial market response to President Trump’s proposed tariffs on China was an overreaction, with US shares losing $US1.4 trillion in market cap in response to maybe less than $50bn in tariffs, on a tiny fraction of global trade, when the US will see something like $US800bn in fiscal stimulus this year,” he pointed out.

In other market-spooking news, “US bank funding costs are still blowing out, with a flow to Australia – but it’s not a GFC re-run,” Shane says. “The gap between US dollar interbank lending rates and the expected Fed Funds rate has continued to widen, raising concern about some sort of credit crunch.”

But he insists it’s all minor compared to the GFC and shares this chart, which he thinks proves it. Note, the difference in the spike in 2009 compared to now but it still bears watching.

Source: Bloomberg, AMP Capital

The biggest issue for Aussie investors will be about whether our local positive factors can eventually get on top of the negative external headwinds that are dragging stocks down. Volatility will persist this year but I’m betting it’s on a rising trend.

Shane Oliver is looking for a 6300 top for the S&P/ASX 200, while Macquarie is at 6400. But if Donald Trump can pull off some good work to arrest his popularity problems before the mid-term elections in November, then maybe our stock market might get some real oomph in the second-half of 2018 and get to 6600.

Shane thinks the interest rate differential between us and the US will bring the Oz dollar down, however, Macquarie’s Martin Lakos told me this week on my Money Talks show that his analyst buddies expect BHP to head towards $36. I suggest this would happen with commodity prices holding up, so the dollar’s dive would hardly be dramatic if that ends up being the case.

Barring some hard-to-see curve ball, we are in another buying opportunity.

What I liked

What I didn’t like

Smith and Sandpaper Gate

Not surprisingly, Magellan Financial has walked away from its three-year deal to sponsor the Australian men’s domestic cricket test series. This underlines how precarious it is for a listed company to pair up with a sports team. You might be interested in my take on Steve Smith and the positive lesson from this cricketing crisis. [1]

Have a great Easter!

The Week in Review:

Top Stocks – how they fared:

What moved the market?

Calls of the week:

Food for thought:

Life is a journey. When we stop, things don’t go right” – Pope Francis

Chart of the week:

Job vacancies rose by 4.3 per cent to a record 220,900 in the three months to February. Job vacancies are up 19.3 per cent on a year ago – the strongest annual growth rate in over seven years.

Top 5 most clicked:

  1. Banks – buy or sell? [3]  Paul Rickard
  2. 3 stocks to hop into [5]  James Dunn
  3. Is this trade war another stock buying opportunity? [2] Peter Switzer
  4. Let your winners run, even the speculative ones – Kidman Resources update [15]  Charlie Aitken
  5. Buy, Hold, Sell – what the brokers say [10]  Rudi Filapek-Vandyck

Recent Switzer Super Reports:

Monday 26th March:  Fortune favours the brave [16]

Thursday 29th March: Easter Eggs [17]

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.