Derren Nathan, head of equity research at Hargreaves Lansdown, has commented on the current state of the market, as Donald Trump raises the rhetoric on tariffs.
“The White House’s war of words on international trade has intensified again as Donald Trump touted the prospect of 50% tariffs on copper and a border levy of 200% on pharmaceuticals, which have traditionally been sheltered from import charges. The President also said that semiconductor tariffs will be announced soon. But details of when how and who remain thin on the ground. Confusion has become the new normal with Asian stocks showing little in the way of firm direction overnight. And despite the heavy weighting of pharmaceutical and mining companies on the FTSE 100, the index is expected to hold onto most of yesterday’s small gains at the open.
It’s been no secret to drug developers that their exemption has been under threat and the industry has already had some time to prepare mitigation plans. For now, that exemption remains in place and it could be another year before any taxes come into effect. Washington needs to tread a fine line between acting tough on trade and maintaining the electorates access to vital medicines. For many treatments there just aren’t any alternatives. That said, European pharmaceutical companies already have a strong manufacturing footprint in the US, and the likes of AstraZeneca, Novartis and Roche have already announced multi-billion-dollar expansion plans in-country. There’s likely to be more of the same across the industry. Fears over tariffs, most favoured nation pricing and US policy on vaccines are weighing on sector sentiment. That presents some opportunities to invest in companies strong on both innovation and long-term growth drivers.
For industrial metals there’s already a precedent with steel and aluminium tariffs already at 50%. The UK currently remains at the previous rate of 25% and that could drop to zero under the trans-Atlantic trade deal. With copper too there could well be some carve-outs. But that’s not stopped copper prices surging to record highs with spot prices at nearly $400 as buyers scramble to build their stockpiles.
After an uneventful trading session on Wall Street stock futures are broadly flat. Donald Trump’s social media posts suggest trade announcements concerning at least seven nations are on the cards when Washington awakes with more planned for later in the day. But, absent of hard facts, that may not be enough to have a significant effect on markets.
The renewed trade tensions haven’t been enough to erase the gains seen for Brent Crude oil so far this month. An unexpected increase in inventories reported by the American Petroleum industry has raised further demand concerns and official crude inventory figures from the Energy Information Administration (EIA) are due later today. But prices remain just shy of $70 per barrel as supply continues to dominate the narrative. There’s been another attack on a vessel in the Red Sea raising concerns about this key crude oil supply route. And in the US, the EIA has trimmed this year’s production forecast to 13.37 million barrels per day. With rig counts at near four-year lows there’s little sign that American producers are incentivised to ‘drill baby drill’.”
