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Trump’s tariffs continued to trouble Wall Street and, inevitably, world stock markets but we did pretty well to only be down 0.2% on the S&P/ASX 200 Index. The reality, however, is that this whole steel and aluminium play by the US President has stopped our stocks going higher.

I apologise to any Trump fans out there but I can’t sugar coat his actions that could unleash retaliation decisions by trading partners. It should be reported what experts like AMP’s Shane Oliver have said on the subject: “The events over the last week highlight that there is more to go on the tariffs from President Trump,” Shane speculated on Friday afternoon.

“We remain of the view that there won’t be a global trade war and Trump will use his Art of the Deal/go in hard approach to try and reach a settlement with China, to which the Chinese are likely to be responsive to some degree, as they know there is an issue.

But it’s clear that trade will be a source of volatility and a risk to watch for some time to come.”

And the news continues to pose a threat to stock market confidence. With the exits of Gary Cohn as the President’s economics adviser last week and Trump’s sacking of his Secretary of State, Rex Tillerson this week, now comes the news from The New York Times that US Special Counsel, Robert Mueller, had issued a subpoena for documents related to President Donald Trump’s businesses.

And the plot thickens, with The Washington Post revealing that the President will get rid of his national security advisor, H.R. McMaster. This instability must even worry the greatest Trump fans because it’s sure worrying the stock market.

Back to final bell scores, and the S&P/ASX 200 Index closed 28 points higher (or up 0.5%) to 5949.4. And our market was helped by Wesfarmers’ decision to spin off Coles as a stand-alone supermarket business. The company’s share price spiked 6.3% to $43.80.

Trump tariff troubles aside, there was a nice local sign this week from Westpac’s consumer sentiment index. Confidence rose by 0.2% to 103.0 in March, up from 102.7 in February. The index is above its long-term average of 101.5. A reading above 100 denotes optimism but wait, there’s more.

The quarterly survey response to the ‘wisest place for savings’ showed that 8.3% of respondents preferred to spend rather than save – the highest level in 23 years. This is how CommSec’s Craig James saw the numbers: “Aussie consumers remain cautiously optimistic” he said. “There has been a lot of focus on the uncertainty around household consumption due to modest wages growth. However, increasing job security, record low interest rates, declining property prices and share market volatility appear to be changing attitudes towards saving.”

Sticking on the improving economy theme and the NAB business conditions index rose to a record high 20.8 points in February from a downwardly revised 18.5 points (previously 18.9 points) in January.

Meanwhile, the business confidence index fell to 9.2 points in February from a downwardly revised 10.7 points in January (previously 11.8 points). Remember, however, that the long-term average is 6! But get this: the NAB employment conditions index rose to a record high 16.4 points in February, up from 6.3 points in January and that has to be a plus for economic growth. And all the above gives credence to the OECD’s report this week, which said Australia will grow at a 3% rate over 2018 and 2019.

The US has been growing around 3% but has just slipped but it shows you how good a 3% number is, considering the jobs growth there.

And here’s our recent growth story:

These two charts also help show why US stocks have done miles better over the past few years, though the US numbers are annualised. It’s the trend you look at and the Yanks have been more on the up but our economic story is on the improve.

What I liked

• The Australian dollar hit a one-week low against a strengthening US dollar, fetching US77.87 cents on Friday.
• Credit ratings agency, Fitch, says “global economic growth is set to remain above 3% for three consecutive years until 2019 – a performance not achieved since the mid 2000s.”
• For commodity lovers (like I am at the moment), I liked Credit Suisse giving South 32 and Fortescue the thumbs up. The investment bank also liked Perpetual and APA, in case you’re looking for buying opportunities.
• In the December quarter, household spending rose by 1% to stand 2.9% higher than a year ago. Over the past decade, spending grew on average by 2.6% – a nice sign.
• Tourist arrivals rose by 2.4% to a record-high 760,200 during the month of January, with a record 310,400 Indian tourists travelling to Australia over the year to January, up by 33.2% over the year.
• The ‘Dining Boom’ continues, with commercial loans to the Aussie agriculture industry at a record high $24.2 billion in January.
• And the mining recovery continues, with commercial finance to the miners rising to its highest level in 21 months, at $12.5 billion in January.
• In the US, consumer prices rose by 0.2% as expected in February. Prices are up 2.2% over the year (up 2.1% in the year to January) and they reduce the fears of fast rising interest rates.
• For China, retail sales rose at a 9.7% annual rate in January/February (forecast 9.8%). Industrial production rose at a 7.2% annual rate in January/February, above the forecast average (6.1%), and above the 6.2% growth in the year to December. Fixed asset investment rose by 7.9% in the first two months of 2018, compared with a year ago (forecast 7%).

What I didn’t like

• Reports earlier this week that President Trump is seeking to impose tariffs on up to $US60 billion of Chinese imports. The Chinese might deserve some trade impositions but it really isn’t helping stocks!
• Capital Economics says if trade tensions escalate into a tariff war, especially between the US and China, then the Australian economy would likely be hit harder than most advanced economies. (SMH)
• This from Shane Oliver: since late last year we have been seeing a rise in the spread between the 3-month Libor and the expected Fed Funds rate, with it rising from 10 basis points in November to around 46 basis points now. This type of thing happened in the GFC but the spread rise was much bigger. “So don’t worry – it’s not a GFC re-run!” Shane says. “However, the longer it lasts, the more it will affect bank funding costs, which could result in some (albeit minor) upward pressure on variable mortgage rates (maybe for investors?), partially offsetting recent cuts in some fixed mortgage rates.”
• The number of loans (commitments) by home owners (owner-occupiers) in Oz fell by 1.1% in January – the fourth fall in five months. That said, loans are down by 1.9% on the year.
• The Philly Fed Manufacturing Index fell by 3.5 points to 22.3 (forecast 23) in March.

Watch this next week

The market negativity right now is linked to the fear of the unknown: how will other countries react to the Trump tariffs? Quincy Krosby, chief market strategist at Prudential Financial sums it up with this:

“The market is still vulnerable to headlines, particularly with regard to trade and any retaliation.

We’re waiting for reaction from the European Union and reaction from the Chinese in terms of retaliatory responses,” he said on CNBC.

And to add to anxiety, there is a two-day Federal Open Market Committee monetary policy meeting next week. “It’s Jerome Powell’s first conference and the market expects a rate hike … [investors] will also be paying attention to his comments and the press conference,” Krosby said. “He’s extremely fluent in the language of the Fed, extremely fluent in the thinking of the Fed.”

Given these two big events next week, you can understand the US stock market giving into gravity but it would be a more negative story if the global and US economic stories were less positive. And it goes double because the corporate profits outlook story is also very positive.

So the only real threat is the uncertainty of trade retaliation and the Fed’s and the bond market’s impact on interest rates.

We live in interesting times.

The Week in Review:

• What should you listen to when buying a stock? Your heart or your mind or both? I take a look at BHP and Gerry’s HVN. Are they screaming buys or sells?
• Are you ready for the biggest IPO in 2018? Latitude has hired Alec Baldwin in a new high profile brand campaign, but are the current owners just dressing the company up for a quick sale? Paul Rickard takes a look.
• There might still be plenty of upside for this little Aussie gamer said Charlie Aitken.
• Laboratory group, ALS, rallies on rising demand for minerals testing, as mining-services sector recovery continues. Tony Featherstone discussed where ALS is heading.
• Up, up and away. Travel numbers are booming and tourists are spending more which augurs well for local tourism companies. James Dunn looked at 6 stocks to play the tourism boom with.
• Which retailers are going to survive the digital disruption? Roger Montgomery explored 3 that may or may not be here in a decade’s time!
• In the first Buy, Hold, Sell- what the brokers say REA Group was upgraded, while Bank of Queensland was downgraded in a pretty quiet week.
• And in the second Buy, Hold, Sell – what the brokers say Sydney Airport and Southern Cross Media both get upgrades.
• In this week’s Hot Stocks A2Milk gets the best report card from earnings season.
• And in this week’s Professional’s Pick this monopoly operator of the tunnel between the UK and Europe has some serious competitive advantages. Find out what company it is.
• Plus, Paul Rickard answers all of your Questions of the Week including the safety of some income investments.

Top Stocks – how they fared:

What moved the market?

• Labor’s plan to end the share dividend meaning that more than one million shareholders including self-funded retirees who pay little or no tax, would lose cash refunds for excess dividend imputation credits.
• Donald Trump’s decision this month to impose tariffs on steel and aluminium imports generated plenty of speculation about potential retaliation from trading partners. For the bond market, investors are keeping a close eye on China’s holdings of US government debt
• Wesfarmers shares up 5% after the company announced historic plans to divest its Coles grocery business via a demerger
• Banking royal commission. Is that why the banks are down this week?

Calls of the week:

• The call is leaked! Bill Shorten’s naked tax grab.Is he an ageist? Find out what Paul Rickard had to say about that here.
• Not a call but a text – 14,000 of them to his young girlfriend, in fact, which saw the sacking of the Australian Border Force chief, Roman Quaedvlieg.
• Aristocrat (ALL) is in Charlie Aitken’s good books.

The Week Ahead:

Australia

• Tuesday March 20 – CBA Business Sales Indicator (February)
• Tuesday March 20 – ABS residential prices (December quarter)
• Tuesday March 20 – Reserve Bank Board minutes (March)
• Tuesday March 20 – Panel participation by Reserve Bank official
• Wednesday March 21 –  Skilled internet job vacancies (February)
• Thursday March 22 – Employment/Unemployment (February)
• Thursday March 22 – Population (September quarter)

Overseas

• Monday March 19  – China House prices (February)
• March 20/21 – US Federal Reserve meeting (March)
• Wednesday March 21 – US Current account deficit (December quarter)
• Wednesday March 21 – US Existing home sales (February)
• Thursday March 22 – US FHFA home prices (January)

• Thursday March 22 – US Leading indicators (February)
• Thursday March 22 – Markit ‘flash’ purchasing managers indexes (March)
• Thursday March 22 – US Kansas Fed manufacturing survey (March)
• Friday March 23 – US Durable goods orders (February)
• Friday March 23 – US New home sales (February)
• Friday March 23 – Speech by US Federal Reserve official

Food for thought:

Life would be tragic if it weren’t funny. – Stephen Hawking

Stocks shorted:

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before.

Charts of the week:

Wesfarmers surge after Coles spin-off

The change in Wesfarmers share price after announcing they were spinning off from Coles.

 Top 5 most clicked:

1. BHP and Gerry’s HVN – screaming buys or sells? – Peter Switzer
2. Are you ready for the biggest IPO in 2018? – Paul Rickard
3. Buy, Hold, Sell – what the brokers say – Rudi Filapek-Vandyck
4. 6 stocks to play the tourism boom with – James Dunn
5. Hot Stocks – A2Milk and CBA Hybrid – Staff reporter

Recent Switzer Super Reports:

Monday 12^th March: Heart and mind

Thursday 15^th March: Bright ideas

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.