Hope for a Trade Agreement Between the US and China Boosts Global Markets

Last week, stock prices on global markets rose sharply as conciliatory messages from US President Donald Trump sparked investor hopes for a trade agreement between the US and China. On Wall Street, the Dow Jones rose 2.5 percent to 40,113 points, while the S&P 500 jumped 4.6 percent to 5,525 points, and the Nasdaq index increased by 6.7 percent to 17,382 points.

Trump’s Attack on Powell

The beginning of the week did not foreshadow such a development as stock prices sharply fell on Monday following Trump’s fierce attack on the President of the US Federal Reserve, Jerome Powell. Indeed, Trump had publicly criticized the Fed chair before and urged him to lower interest rates to stimulate economic growth, but this time Trump unleashed insults at Powell. The US economy is slowing down ‘if ‘Mr. Too Late’, a big loser, does not immediately lower interest rates,’ Trump wrote on social media.

Trump criticizes Powell because the Fed chair has indicated in recent months that the central bank will not take any action regarding interest rates as it waits for data on how tariff increases will affect inflation and economic growth. Trump’s attack calls into question the independence of the central bank, and his insults undermine its credibility, leading to a sharp decline on Wall Street on Monday.

– Countries with independent central banks experience faster economic growth, lower inflation – they have better economic outcomes for their people. And politicians trying to influence the Fed… that is really a bad idea and very frightening for the market – said Jed Ellerbroek, portfolio manager at Argent Capital Management.

However, by Tuesday, the indices had recovered all previous losses as Trump indicated that he did not plan to dismiss Powell, but only wanted lower interest rates.

Easing Tensions Between the US and China

By the end of the week, stock prices on the world’s largest stock exchange continued to rise, primarily due to investors’ hopes for a reduction in trade tensions between the US and China. Although there is still nothing concrete on this matter, investors believe that an agreement will be reached sooner or later, given the easing of rhetoric from the White House on this issue. Such messages have primarily driven the rise in stock prices in the technology sector.

– The easing of rhetoric regarding tariffs is one of the reasons for the rise in stock prices of chip manufacturers as this sector is at the center of the trade conflict between the US and China – says Paul Nolte, strategist at Murphy & Sylvest.

Therefore, he says, any easing of tariff rhetoric between the two countries stimulates the entire technology sector.

– However, there are still many questions in the market regarding tariffs to which we do not have answers. Therefore, many of us are actually just shooting arrows into the dark – says Nolte.

Investors are also focused on quarterly business results of companies. So far, 179 companies from the S&P 500 index have reported, with 73 percent exceeding earnings expectations. Analysts now estimate that corporate earnings in the first quarter have increased by an average of 9.7 percent, while at the beginning of April they expected growth of around 8 percent.

European Markets Rose Sharply

Stock prices on European markets also rose sharply last week, thanks to good quarterly business results from European companies and the easing of trade tensions. The London FTSE index strengthened by 1.7 percent to 8,415 points, while the Frankfurt DAX jumped 4.9 percent to 22,242 points, and the Paris CAC rose by 3.4 percent to 7,536 points.

On the Zagreb Stock Exchange, the main stock indices rose by about 1.3 percent last week, thus recovering losses from the previous week, with a focus on the shares of Končar D&ST after the company reported its quarterly business results. The Crobex index rose by 1.36 percent last week to 3,229 points, while the Crobex10 increased by 1.34 percent to 2,031 points. Thus, they recovered losses from the previous week when they fell by about one percent.