Weekly Market Update

24/09/2018

Global stocks rose last week, despite concerns about the ongoing trade war, with the S&P 500 hitting a new record high as tech shares rebounded. Oil prices gained on concerns about looming Iran sanctions and, in the UK, Brexit took another setback.

The White House said it would impose 10 per cent tariffs on $200bn worth of Chinese imports, which would rise to 25 per cent if the two nations did not agree a trade deal by the end of the year. Almost half of all Chinese exports to the US now face such tariffs. China in turn announced levies on $60bn worth of American goods. However, the market response was not as severe as expected, as these policies were widely telegraphed.

Mr Trump’s decision to increase import tariffs, coupled with the threat of steeper and possibly broader levies after the end of the year, marks a serious escalation of hostilities. Some policymakers think that given the tight labour market and strong growth, companies may be more willing to pass on tariff-related price increases to consumers, adding to short-term inflation pressures.

Meanwhile, Moscow and Beijing warned the Trump administration after the US imposed a new round of sanctions on China and Russia, deepening the mistrust of these nations. Ties between Russia and China have vastly expanded to include energy deals, cross-border investments and defence co-operation and have picked up speed this year amid attacks on both countries by President Donald Trump.

The UK inflation rate rose 2.7 per cent in August, up from 2.5 per cent the previous month, above market expectations. Rising inflation at a time when economic growth is mediocre at best will no doubt concern the Bank of England. The Bank might have to raise interest rates faster than it would like. This could include as early as next year, at a time when Brexit looms ever-larger.

EU leaders rejected UK Prime Minister Theresa May’s Chequers plan at their Salzburg summit last Thursday. EU chief Donald Tusk said a key part of that plan was unworkable, while the furious prime minister later doubled down on her Chequers plan, calling it the only serious and credible option. Sterling took a further hit against its major trading partners benefiting FTSE 100 companies.

Japanese prime minister Shinzo Abe won a third term as leader of the governing Liberal Democratic Party, enabling him to stay in office for another three years. With a solid majority in parliament and no general election due, Abe now stands a good chance of becoming the longest serving prime minister, giving him a fresh mandate to push through his reform agenda. Japan has full employment, wages rising ahead of the inflation rate, booming business investment and an unprecedentedly profitable corporate sector.

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