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Last Week in the City: Trade war rhetoric escalates

 
Garry White
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Trump Announces Reforming American Immigration for a Strong Economy (RAISE) Act
The US president questioned whether UK prime minister Theresa May's plans upheld the referendum result and accused her of ignoring his advice (Source: Getty)

Garry White, chief investment commentator, looks at the market-moving events that have shaped the UK equity markets this week (9 to 13 July 2018).

Trade war fears continued to dominate markets, as US President Donald Trump said a further £200bn of tariffs could be imposed on Chinese goods. He also criticised Germany, saying its reliance on Russian gas meant that Russia controlled Germany. The end game in the trade war remains unclear.

The FTSE 100 rose 1.1% over the week by mid-session on Friday.

John Redwood, Charles Stanley’s Chief global strategist, looks at the prospects and risks in global markets here.

Economics

The European Commission lowered its growth forecasts, blaming rising energy prices and trade tensions.

Eurozone industrial production rebounded in May, rising 1.3% month-on-month. This was higher than economists’ expectations of 1.2%. It sees euro-area growth of 2.1% compared with previous forecast of 2.3%.

Growth in China’s exports beat expectations in June, with the dollar value of goods sold abroad up 11.3% year-on-year. Imports increased 14.1%, below expectations of 20.8%.

Geopolitics

Controversy surrounded Theresa May’s Brexit White Paper, with Donald Trump attacking the deal on his visit to the UK. The US President questioned whether her plans upheld the referendum result and accused her of ignoring his advice. He also suggested that former foreign secretary Boris Johnson, who quit in opposition to her Brexit plans this week, would make a great prime minister. He also said the proposals could “kill” a US trade deal. The comments resulted in a slide in sterling.

President Trump also escalated the trade war with China, announcing potential further tariffs on $200bn of imports from the Asian nation. These proposals will not come into effect for some time, as there is a legal consultation process that will run through July and August. As a result, copper prices continued their slump to a 12-month low and soybean prices, which China has targeted in the spat, hit their lowest level since the financial crisis in 2008. To discover why soybeans are important in the dispute click here.

With the Trump administration targeting China, the country is facing a number of difficulties. John Redwood, Charles Stanley’s Chief Global Strategist, assesses the situation here.

Energy

The oil price slumped on worried over the escalating trade war and on oversupply fears after Libya said it was ready to increase output from one of its major oil fields. Brent crude futures fell 4.6% over the week by mid-session on Friday to trade at around $73.50 a barrel.

Mining

Rio Tinto agreed to sell its interest in the Grasberg copper mine for $3.5bn to state-owned mining holding company Indonesia Asahan Aluminum.

Technology

Nasdaq hit a new record high on Thursday, with Amazon, Google-owner Alphabet, Microsoft and Facebook shares all closing at all-time highs.

The integration of HPE Software into FTSE 100 listed software group Micro Focus is running a year behind schedule due to a clash of sales cultures and setting up new IT systems, according to chairman Kevin Loosemore. The shares fell sharply following the comments.

Electric vehicle producer Tesla said it will build its first factory outside the US in Shanghai. China is the world’s number one electric vehicle market.

Consumer

Shares in UK gaming groups rose on Thursday after England crashed out of the World Cup following the team’s defeat to Croatia on Wednesday night. Paddy Power Betfair, William Hill and GVC all gained.

JD Wetherspoon reported a solid rise in sales on the back of England’s run in the World Cup on Wednesday while saying it faced considerable rises in costs next year due to increases in the minimum wage and taxes.

Sales at Burberry met expectations in the first quarter, though weaker tourism impacted performance in the UK and the rest of Europe.

Other retail

Online fashion group ASOS disappointed after management said sales growth this year would be at the lower end of the expected 25% to 30% range.

The warm weather was blamed for a profit warning from DFS Furniture. Management said earnings in the current financial year would be lower than in 2017.

Homeware chain Dunelm said it had more leftover stock than usual after its summer sale, which hurt profit margins. Profits this year are also expected to be lower than last year.

Property

House builder Barratt Developments said it expected to produce record annual profits this year after it saw the highest number of completions in a decade.

Media

The bidding war for pay-TV group Sky escalated after US media giant Comcast raised its offer for the broadcaster. The new offer, which values Sky at £26bn, trumped an earlier bid from Rupert Murdoch's 21st Century Fox. Comcast is now offering £14.75 a share, compared with £14 apiece from Fox.

Travel

Shares in Norwegian Air jumped after the company posted second quarter earnings that showed revenues increased by a third. Lufthansa and British Airways owner IAG are both believed to be interested in buying the company.

In the US, Delta Air Lines and American Airlines issued profit warnings because of the rising cost of fuel.

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