Markets slump on trade war escalation
Europe has opened deep in negative territory on the final day of the week as investors respond to another escalation in the US-China trade war.
Trump announced on Thursday evening that the US will impose a 10% tariff on the remaining $300 billion worth of Chinese imports which suggests negotiations in Shanghai this week didn’t go as well as hoped. Expectations for the talks were low but few expected the week would end in more tariffs. Clearly there’s still a long way to go.
The fact that the tariff is only 10% suggests Trump still believes there’s hope for the talks but also that he’s now in uncomfortable territory that he hoped to avoid. There’s a reason these were saved until the end and I’m sure that, despite all his claims, he will not want to raise them, especially heading into an election year when the economy is already on shaky ground.
On the upside, markets have now almost fully priced in a rate cut for September on the back of the announcement, so that could be one win for the President. If public pressure – to put it mildly – doesn’t succeed, then a trade war that creates significant risk to the economic outlook will. At least the Fed now has a reasonable excuse and can’t be accused of simply reversing past policy errors and doing the Presidents bidding.
Oil slumps on Trump announcement
Oil prices tumbled in the aftermath of the announcement, which is hardly surprising given that it represents the greatest risk to the global economic outlook, including the world’s largest economies and consumers of crude. Oil is paring those losses today but is trading back at the lower end of its range over the last couple of months. If this escalates further before next month’s talks, assuming they happen, prices could tumble further.
Brent Daily Chart
Gold enjoying the trade war
Gold was one of the few to benefit from the Trump announcement, bouncing nicely off its lows and back towards its recent highs. While its safe haven status will have aided the move, it was primarily driven by the drop in the dollar which slid as traders once again heavily priced in a rate cut in September. Traders are desperate to price in rate cuts and it seems were only temporarily deterred by a reluctant dove in Fed Chair Jerome Powell.
Gold Daily Chart
RBS cautious as it reports higher profits
The news is certainly improving over at RBS after years of losses. The lender has returned to profitability in recent years and exceeded expectations again in the last quarter, enabling it to announce an 2p interim dividend and a 12p special dividend. It’s not all good news though as it also warned about the tough economic environment – which should surprise no one at this stage – which will make it unlikely to meet its 2020 return on tangible equity goal. Not all good news then but its certainly going in the right direction.
BT backs government fibre ambitions
BT met analyst expectations on both the top and bottom lines and threw its support behind efforts to roll out full fibre across the entire country, as it reported on the first quarter. Chief Executive Philip Jansen is convinced they are on track to hit its full year targets as the company continues to invest heavily, which has taken its toll on its cash flow.
