Trade war batters global indices with US markets down 4% for the week; Nifty falls 2%, VIX at 15.25%

Global markets fell sharply on Friday after US President Donald Trump slapped levies on Chinese products. The trade war between the two economic giants intensified after the US President set in motion tariffs on as much as USD 60 billion in Chinese imports to the US on Thursday and accused the Chinese of high-tech thievery, picking a fight that could push the global heavyweights into a trade war.

The impact was also felt by the Indian equity markets as the S&P BSE Sensex and Nifty50 closed at their lowest levels in over 5 months, following negative lead from global stocks. Rising oil prices also dented sentiment.

The 50-share NSE Nifty closed below the psychological 10,000-mark for the first time since October 11, 2017, falling 116.75 points or 1.15 percent to
9,998.05. For the week, the index lost 2 percent.

The 30-share BSE Sensex was down 409.73 points or 1.24 percent at 32,596.54, taking the weekly loss to 1.7 percent. Nifty ended 1.93 percent down on weekly basis at 9998.05.

The Implied Volatility (IV) of calls closed at 15.21 percent while that for put options closed at 15.39 percent. The Nifty VIX for the week closed at 15.25 percent and is expected to remain sideways.

Asian markets closed sharply lower on Friday, led by steep declines in US and European markets. The Nikkei fell 4.51 percent, or 974.13 points, to close at 20,617.86 after dropping to its lowest levels in more than five months. It also fell 4.88 percent for the week.

US markets

The markets were on roller coaster ride owing to FOMC meet amid US trade war issue. Though the rate hike was already discounted in the market few days back, it was really volatile on Wednesday and Thursday.

The US Federal Reserve raised interest rates and forecast at least two more hikes for 2018, highlighting its growing confidence that tax cuts and government spending will boost the economy and inflation and spur more aggressive future tightening.

Following the hike in interest rate by the Fed, China raised key market interest rates. The People's Bank of China had increased the rate on 7-day reverse repurchase agreements by 5 basis points (bps) to 2.55 percent.

US markets fell sharply on Friday, adding to their steep weekly losses, as investors assessed the possibility of a trade war brewing between the US and China, a CNBC report said.

The Dow Jones industrial average dropped 424.69 points to close at 23,533.20 — its lowest level since November. The 30-stock index also closed in correction, down 11.6 percent from its 52-week high. The S&P 500 declined 2.1 percent to 2,588.26, with financials pulling back 3 percent. The Nasdaq composite fell 2.4 percent to 6,992.67.

Week to date, the major averages posted their worst week since January 2016. The Dow and S&P 500 dropped 5.7 percent and 5.9 percent, respectively, while the Nasdaq pulled back 6.5 percent. The week also ended with eight of 11 S&P 500 sectors in correction.

The Cboe Volatility Index finished up 1.53 points at 24.87, its highest close since February 13.

Oil prices lifted by statement from Saudi Arabia that production curbs led by OPEC and Russia will need to be extended into 2019. Furthermore, unexpected draw on US crude inventories as it fell 2.6 million barrels in the week to March 16, to 428.31 million barrels also strengthened the prices.

Middle East tensions  between Saudi Arabia and Iran, as well as concerns that the US will reimpose sanctions on Iran, are also supporting oil markets, a report by SMC Global said.

European markets

European stocks registered a third straight day of fall on Friday, suffering the lowest close in more than a year as trade war fears between the US and China escalated. The Stoxx Europe 600 index fell 0.9 percent to 365.82 while the DAX shed 1.8 percent, thereby closing with a 4.1 percent loss on a weekly basis.

France’s CAC was down 1.4 percent to 5,095.22, while the UK’s FTSE fell 0.4 percent to 6,921.94 thereby registering a weekly loss of 3.4 percent

UK Annual inflation fell to 2.7% in February

Earlier in the week gone by, the British inflation was weaker than expected in February as the impact of the 2016 Brexit vote faded, easing some of the squeeze on households’ spending power but doing little to change bets on a Bank of England rate rise in May.

Official data showed consumer prices rose by an annual  2.7 percent last month, the weakest increase since July of last year and down from a rise of 3.0 percent in January, Reuters reported.