UBS Sees no calm in market storm on Trump's odd decision-making

[TOKYO] UBS Wealth Management says the storm that hit US equities on Monday won't go away anytime soon.

Markets will remain volatile before a payrolls report on Friday, kept on edge by the hard-to-guess prospects of what US President Donald Trump's government will do next, Mike Ryan, chief investment officer for the Americas in global wealth management, and David Lefkowitz, senior equity strategist for the Americas, wrote in a note to clients. That applies particularly to global trade, they wrote.

US equities tumbled to start the week, led lower by technology stocks, as fresh presidential criticism of Amazon.com Inc and retaliatory tariffs from China rattled investors. China's changes to its treatment for more than 100 types of US imported goods came after Mr Trump rocked equities last month by announcing levies on imported aluminium and steel.

"The Trump administration's unorthodox and unpredictable decision-making is likely to keep markets on edge, especially as global trade takes centre stage in policy discussions," Mr Ryan and Mr Lefkowitz wrote.

"Markets may remain choppy over the next few days as we await Friday's payroll report and the kick-off of first-quarter earnings season next week."

While the selloff in US equities was due to "a combination of geopolitical and fundamental" reasons, technical factors also exacerbated it, Mr Ryan and Mr Lefkowitz wrote.

The S&P 500 Index closed on Monday below its average price for the past 200 days for the first time since June 2016.

Still, UBS Wealth says that beyond the rhetoric over trade, there are reasons to be optimistic. One of them is also due to Mr Trump: the expected positive impact on US companies' earnings from his tax cuts.

"The overall outlook remains supportive of risk assets," Mr Ryan and Mr Lefkowitz wrote.

"With corporate earnings still poised to rise sharply in the aftermath of tax reform, we look for equity markets to continue to grind higher."

BLOOMBERG