The Volatility is Back

Daily Analysis - 20/03/2018

Anticipating Fed Rate Hike

The Markets shake before the 1^st anticipated interest rate hike by the Fed for the year. The Trump administration policies, mainly with departures from White House cabinet and fears over a potential trade war, sparked fear on the equity markets. Facebook led the losses as it is under investigation pressures.

Facebook Crackdown

Facebook, the social media giant, came under fire following reports it allowed improper access to user data. The stock was down almost 7% in Monday trading, evaporating a market value of more than $30 billion.

A major investigative piece by The New York Times and The Guardian detailed how Facebook failed to protect its data from Cambridge Analytica, a political research and technology firm that used the information to create ads for the Trump campaign. Cambridge Analytica worked on Facebook ads with President Donald Trump's campaign in 2016.

Facebook traded 6.8% lower and dropped below their 50-day and 100-day moving averages, two key technical levels. The social media titan is facing demands from U.S. and European lawmakers to explain how a consultancy that worked on President Donald Trump’s election campaign gained improper access to data on 50 million Facebook users.

As leaks surface about how the personal information of 50 million Facebook users was stolen and exploited during America's 2016 presidential election, Mark Zuckerberg has not been seen. There is a fundamental conflict between Facebook's business interests and the public interest. Zuckerberg can't hide from that.

The Trump Administration and Global Trade

Politics in the United States dominate investors’ sentiment as unpredicted president Donald Trump’s policies and tweets have a major impact on the financial markets. Investors have been paying close attention to Washington recently amid a shift in trade policy and two key departures from the White House.

Trump signed two proclamations imposing tariffs on steel and aluminum imports earlier this month. Now, the Trump administration is expected to unveil up to $60 billion in new tariffs on Chinese imports by Friday. The target would be on technology, telecommunications and intellectual property.

Gary Cohn, who disagreed with Trump on implementing the tariffs, resigned from his position as director of the National Economic Council. Trump also fired Rex Tillerson from his position as Secretary of State last week, replacing him with CIA Director Mike Pompeo.

The president also fired on Friday the Deputy FBI Director Andrew McCabe just two days before his retirement. Shortly after his firing, several media reports suggested McCabe kept a file of notes on his discussions with Trump, similar to documents former FBI Director James Comey is said to have taken.

Wall Street also paid attention to Washington after a Twitter meltdown from President Donald Trump.

1^st Interest Rate Hike by the Fed for 2018

The Federal Reserve is expected to raise interest rates Wednesday, with new Fed chief Jerome Powell giving his first press conference. According to the CME Group's FedWatch tool, on Monday morning, market expectations for a March rate hike were at 94.4%. The Fed is expected to raise rates by a quarter point (0.25%) at the end of the FOMC two-day policy meeting 19:00 GMT on Wednesday.

Economists believe the Fed should discuss the Trump administration's tariffs and the potential for trade wars. However, there is not enough information for it to assess the impact on the economy and the Fed is unlikely to even mention the biggest risk for the economy when it issues its statement Wednesday.

The banks rate statement will be closely watched for any indications of an update of their projected path of interest-rate hikes, known as the “dot plot.” The unanswered question looming: Could Powell’s optimism about the U.S. economy lead to more hikes than markets have prepared for?

The last time the Fed raised rates was in December where they forecasted three rate hikes for 2018. An upbeat assessment of the economy by Powell late last month fueled speculation that a fourth rate hike could be on the cards.