Market update: Trump threatens tariffs on Iran trade and Footsie reaches fresh records
Susannah Streeter, chief investment strategist, Wealth Club. ‘’More onerous trade restrictions are for now the weapon of choice of the US administration, to put pressure on Iran’s regime, but options for military action are still being weighed up. With threat of a fresh geopolitical crisis in the Middle East having immediately receded, investors sentiment has lifted, helping push main global indices to fresh records. Tariffs are Trump’s well-worn modus operandi, and there’s expectation he will follow through to some extent, But as we’ve seen before heavy tariffs don’t always stick around for long, and are often temporary negotiating tactics. Oil prices are still well below the average over the past 12 months. A strike on Iran’s regime would prompt another big spike in volatility.
The Footsie has been on the front foot again reaching fresh records of 10150 in early trade. It pulled its socks up, staging a turnaround from Monday’s lower open, with investors still seeking solace in the defensive nature of listed multinationals. It’s also been buoyed by positive updates from Premier Inn owner Whitbread, which was given a further boost on expectations that the government is set to water down its planned hike in business rates, while drinks giant Diageo’s plan to offload some Chinese operations in a streamlining move provided cheer.
Gold’s glittering run saw miners again make strong gains on Monday but they’ve edged lower after the precious metal had slipped back a little amid an easing of geopolitical tensions. But ongoing nervousness about Trump’s interference in the Fed is set to keep a floor under prices.
Former treasury secretary Janet Yellen has described the opening of a criminal investigation into the testimony of Jerome Powell as chilling and signs the US was on the road to being a banana republic.
The big worry is that if the Fed is bowed to do the president’s bidding, there will no longer be a razor-sharp focus on ensuring inflation does not veer out of control. Today’s core inflation numbers for December in the US will be under intense scrutiny. There are already signs of persistent inflationary pressure, with the data expected to show a slight tick up in price rises to an annual rate of 2.7% from 2.6% in November, veering further away from target. If it overshoots expectations, it could dampen enthusiasm for equities given that further interest rate cuts could be delayed. But it seems in Trump’s wishful world, the Fed would keep lowering borrowing costs despite runaway inflation risks, which is why there’s so much unease around about US future monetary policy.”