Market report: Trade worries and China’s deflation problem weigh on sentiment
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “Unease about the effect of Trump’s tariffs hangs over financial markets at the start of the week. The prospect of a recession in the US is lurking, with consumer confidence falling, companies facing increasing trade complexity and investors turning more nervous. China’s deflation problem is also weighing on sentiment, and geopolitical concerns are staying in focus, with attacks on Ukraine intensifying.
The FTSE 100 is on the back foot in early trade, unable to shake off the nervousness surrounding the concerns about slowing global growth. Brent Crude, a gauge of expectation about the health of the global economy, has dipped back again, trading around $70 a barrel, as energy demand is expected to be weaker as economies slow. A disappointing snapshot from China, showing consumer price fell at the fastest rate in 13 months, is adding to concerns about weakness in the global economy. Deflation continues to stalk the Chinese economy, with consumers super-cautious about spending. The property crisis has battered wealth perceptions and led to risk averse behaviour, with wariness rising amid the ratcheting up trade tensions and fresh tariffs being imposed by the US. Efforts by authorities so far to reduce the cost of borrowing to stimulate growth have not had the desired effect. The expansion of a subsidy programme for a range of domestic goods underwhelmed, given the lack of more targeted support for households.
Defence stocks are set to stay in focus, as more detail about an increase in military spending is expected when Europe’s finance ministers meet. Accessing bigger pools of funding to pay for a ramp up in capabilities will be in focus, with an expectation that existing EU funds will be tapped, and the European Investment Bank will provide further ballast. The need for defence to be put front and centre of spending decisions is being brought into sharp focus amid the intensifying attacks on Ukraine. President Zelensky is in Saudi Arabia, meeting Crown Prince Mohammed bin Salman, ahead of talks between Ukrainian and US officials about the war with Russia. Trump is pushing for a rapid end to the conflict and has raised the stakes for Ukraine by suspending military aid and intelligence sharing. The deal for the US to access Ukraine’s rare earth minerals will be a big focus for this week’s discussions, with hopes that calmer diplomacy will replace the of the shocking scenes between Zelensky, Trump and Vance at the White House.
After Wall Street clocked the biggest weekly fall for months, futures again point to a negative start to the session. Donald Trump avoided answering when asked in a TV interview if tariffs could spark a recession. Mark Carney’s victory in his quest to become Canada’s new Prime Minister is set to add more impetus to his country’s fight back against Trump’s tariffs. He’s framed the challenge as an existential crisis for Canada and vowed to bring in super-fast policymaking to protect the nation. With the new leader of a crucial US trading partner on such a defensive footing, it’s adding to concerns about how North American firms will navigate this complex new trading world.”