Market report: Downbeat start to the month amid new trade war fractures
Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘’The Footsie is struggling to cling onto ground as undercurrents of pessimism wash over markets and new fractures in the global trade war open up. Trump’s pledge to double steel and aluminium import tariffs have caused fresh uncertainty, especially with the European Union vowing to retaliate against the measures. Negotiations between the US and China also appear to be in disarray after China accused the US of ‘severely violating’ their trade truce and pledged to enact measures in response. It comes after Trump said Beijing ‘totally violated its agreement’.
We’re back in a situation of one step forward, two steps back, but there do appear to be expectations that more concessions will be struck. Investors are getting used to aggressive statements being rolled back, so much so the TACO trade theory has rippled through Wall Street, which stands for ‘Trump Always Chickens Out’. But there’s no guarantee that the US President won’t follow through with more onerous restrictions, given he’s stayed steadfast to his pledge to bring more manufacturing back to the US. It’s a big setback for steel manufacturers around the world, with orders set to be disrupted yet again. There had been high hopes that in the UK some stability would return following the US-UK trade deal but those have now been dashed. Wall Street is set to start the week on a downbeat note. The fresh tariff pledges raise inflationary concerns in the US, given that around a quarter of steel almost 60% of aluminium used in the States is imported, which will push up costs for manufacturers and the construction industry.
London-listed military contractors are on the front foot in early trade as the UK government pushes defence spending up the priority list. BAE Systems and Rolls Royce have gained fresh ground, as commitments for 12 new submarines were made. Both companies have played a key role in designing and building UK nuclear subs. Babcock International shares are also up, amid expectations that it will benefit given that it currently maintains the UK’s submarine fleet and supports the MOD’s concept of ‘continuous at-sea deterrent’. The government wants the UK’s armed forces to be on war-fighting readiness to act as a deterrent, so it seems that higher defence spending is here to stay.
There’s a fresh blow to UK attempts to woo and retain listings in London. Already the fast fashion giant Shein is thought to be eyeing Hong Kong instead of London for a blockbuster listing. Now the pharmaceutical company Indivior is delisting its shares from the London Stock Exchange. It had already moved its primary listing to the Nasdaq index and given that 80% of its revenues are generated in the United States, its going all in, to eliminate costs and complexity. The lower liquidity levels on the London Stock Exchange was part of the decision, with higher trading levels on the Nasdaq a clear pull for the company. But London hasn’t completely lost its allure, given that it’s the home for the Anglo American’s platinum spin off Valterra. The company has begun trading on the LSE today, following the separation from parent company Anglo on Saturday. It is a boost to London’s reputation for hosting mining giants, and helps dig London out of a hole, given the exodus of recent years.
With geopolitical uncertainty swirling, oil prices have pushed higher to above $64 a barrel amid some pressures on supplies. Ukraine drone attacks inside Russia destroyed 40 military aircraft, while strikes on targets in Ukraine have continued. Talks are taking place in Istanbul, but there seems to still be a gulf to surmount for a ceasefire deal to be reached. OPEC+ countries did agree to increase production, but this had largely been factored in and is being seen as attempts to prompt more uniform production, and clamp down on individual nations over-supplying the market.’’