Weekly Market Update

09/04/2018

Fears of a damaging trade war left investors on the back foot after an apparent escalation of words between Donald Trump and China. In the mix was Donald Trump’s plan to slap an additional $100bn in tariffs on imports from China, escalating the tit-for-tat response between Washington and Beijing over the last few weeks.

There followed some hope of a ceasefire, as China’s ambassador to the US, Cui Tiankai, met with acting US Secretary of State, John Sullivan. But the relief rally appeared short lived as further threats escalated including the news that China was considering tariffs on US goods such as soybeans, in retaliatory action for President Trump’s $50bn worth of US tariffs. In 2017, China imported $13.9bn of US soybeans, 61 per cent of total US exports and nearly one-third of annual soy production.

Technology stocks also endured a bumpy ride. Increased public scrutiny in the aftermath of Facebook’s user data scandal, both towards social media companies and the wider sector, meant they started the week under pressure in Europe and the US.

Each of these moves caused considerable volatility in financial markets. In the US, Wall Street began the week and the second quarter of 2018 in ‘correctional’ territory, while the oil price was negatively hit as the new tariffs on Chinese goods, prompting fears of a slowdown in global trade.

However, the fundamentals remain strong even with the US witnessing weaker job numbers. However, wage growth rose to 2.7 per cent and the unemployment rate held steady at 4.1 per cent. Both results were as expected, offering evidence that the labour market remains in robust shape.

In the UK, manufacturing data softened to a degree, but manufacturers still reported solid inflows of new work from domestic and overseas markets. Business optimism is holding steady at an elevated level, with over 54 per cent of companies expecting output to expand over the coming 12 months. It appears the boost from the lower exchange rate is still providing ample support for manufacturers.

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