Market report: Trade negotiations and deals send positive vibes through markets
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “Exuberance is set to continue at the start of the week, as more trade deal scores are on the doors and geopolitical tensions have eased off. The FTSE 100 has nudged higher in early trade, edging back on track towards highs reached earlier this year. Positivity has been washing through Wall Street, with stocks looking set to book fresh record levels. It comes after the S&P 500 reached a fresh milestone on Friday. Investors have shaken off tariff fears, with the deepest threats from Trump failing to materialise.
Talks between Canada and the US are back on the cards, after an agreement to scrap a tax targeting American tech firms. Mark Carney appears to have acquiesced to Tump’s demands to drop the digital services levy, to get back round the table and avoid another trade threat escalation. Bit by bit, Trump’s hardline negotiating tactics appear to be bearing fruit. There will now be speculation that other countries, like the UK, will be forced to drop their own taxes targeting the biggest tech firms in the world when further talks take place..
The trade deal announced again between the US and China, has poured more optimism into glass half full attitudes. Even though it’s still pretty scant on detail, the agreement looks set to give US companies better access to crucial rare earth minerals, exported from China. Already data out today shows that the downturn in factory activity in China may be turning a corner. Although official data, from the NBS Manufacturing PMI, showing the sector contracted in May, it was the smallest drop for three months, while new orders grew for the first time since March. Data on the services sector showed growth has returned, helped by more positive vibes on tariff policy. Efforts by authorities to stimulate domestic demand, like lowering borrowing costs, increasing some public sector wages and offering targeted funding for innovation, also appear to be bearing fruit. With the world’s second largest economy showing resilience, it’s likely to keep sentiment more positive at the start of the week.
Revised figures for UK growth indicate that the economy was in a stronger position before Awful April descended. The ONS has released revised figures for March, indicating the economy expanded by 0.4% instead of 0.2%. While this doesn’t move the dial much on a quarterly basis, with growth for the first three months of the year coming in at 0.7%, it does indicate there was a bit more resilience before trade turmoil hit the economy in April, and tax changes came into effect. People appeared more inclined to dip into their savings to keep spending, amid the rising costs of restaurant meals, rents and fuel. But after the shock of Trump’s tariffs, economic activity shrank in April by 0.3%. While the deal with the US will have restored some optimism, uncertainty lingers and it’ll take time to restore confidence, particularly given that borrowing costs remain elevated and more households are dealing with the pain of rolling onto higher mortgage rates.
While markets remain buoyant at the start of the week, some wariness may creep back as eyes turn to the key US jobs report out on Thursday. For now, hopes appear high that there will be fresh signs of a softening labour market, which may propel interest rate cuts to come a little swifter this year. Unemployment is expected to edge up from 4.2% and employers are expected to take on fewer workers compared to the 135,000 total in May. The demand for workers in healthcare and social assistance and leisure is expected to continue, but there could be signs of fresh employer wariness in other areas such as manufacturing – and also the retail and travel business given weaker consumer confidence. But wages look set to remain stickier than the Fed would like to see, so hopes for a cut in July is still unlikely and September still looks a stronger bet.
With the Iran-Israel-US truce holding, geopolitical tensions have calmed and that’s kept downwards pressure on oil prices. Brent Crude has fallen 14% over the past week as the easing of supply disruption worries collided with expectations that OPEC+ nations would ramp up production. There is still expected to be fall out for global growth, due to the impact of US trade policies, so the expectation of lower demand for energy is also weighing on prices.”