With the FTSE 100, Dax and CAC back in negative territory again today, and further losses in Asian markets overnight, Wall Street looks set for another rout as futures indicate fresh falls.
Giving us her take on the most recent market moves, Susannah Streeter, head of money and markets, Hargreaves Lansdown said:
‘’Wednesday has turned into wipeout for equities as the trade war has taken on another twist of escalation. China has slammed 84% tariffs on US goods, in response to the US bringing in steep duties of 104%. At the moment this is shaping up to be a economic conflict without end, with little chance of negotiation or compromise in sight. China has no intention of backing down in the face of what it sees is US aggression. The internationally-focused FTSE 100 has dived deeper into the red, with losses accelerating following the retaliatory action. Germany’s DAX and the CAC 40 in Paris have also fallen steeply. Brent Crude has dropped below the psychologically important $60 a barrel. WTI Crude has also been trading around $55 a barrel, below the breakeven price of some US producers. Amid the slide in oil prices little surprise that energy giants are among the hardest hit on the markets today, with BP shares down more than 6%. But the threat of tariffs is now hanging over the pharmaceutical sector. As investors ready themselves to find out if Trump’s rhetoric about pharma imports will also turn into a highly unwelcome move, AstraZeneca and GSK are both down by around 7%.
Wall Street is readying for another rout as worries take hold about the future prospects for listed companies. Futures markets indicating fresh falls for the S&P 500 and the Nasdaq. Trump’s moves are aimed at fracturing supply chains and ultimately reshoring US manufacturing. But that is a long-term process and in the short term it’ll mean big increases for importers and price rises for hugely popular electronic products, clothes and toys as higher costs are passed onto consumers.
Although tariffs are expected to lead to increased inflation in the United States, the bigger worry right now is the impact on growth in the world’s largest economy. It means more interest rate cuts are being priced in by the Federal Reserve and other central banks. Financial markets are now fully pricing in a cut in May from the Bank of England with at least two more by the end of the year. This is already feeding through to better mortgage deals becoming available and more are likely to land unless there is a big reversal of US trade policy.
So, the tariff wars won’t necessarily bring inflationary risks everywhere. Sharp oil price declines will show up in lower prices at the pumps. UK wholesale gas prices have also come down markedly, to levels not seen for six months given expectations about the hit to global energy demand as Trump’s tariffs threaten to wreak havoc on the global economy. Countries like the UK, Japan and South Korea and nations across the EU also appear to be taking a measured response to tariffs and holding back from tit-for-tat retaliation. The dollar has also fallen back given concerns spreading about the American economy, and given lots of imports are priced in the US currency, this should help keep a lid on prices. With Chinese goods becoming so much more expensive, we could see exports routed into other markets, including the UK and if more goods are available prices could come down. There is also the possibility that countries across Asia with big manufacturing output will lower prices to stay competitive and that could also have a deflationary effect in the UK. But we are in an age of uncertainty and unexpected moves and repercussions are likely. Another sea of red on markets will inevitably be troubling for investors. It is however, important not to panic and look at long-term investment horizons. History has shown that markets do recover from times of crisis and high uncertainty. It is always worth keeping an eye on an investment portfolio and ensure that you are well diversified across a mix of geographies and asset classes to spread the risk. Drip feeding an investment portfolio can also help ride out the volatility.”
