The latest weekly update from 7IM covers an overview of the trade tiff between China and the US, as well as highlighting what’s happening in markets. We hope you enjoy this brief overview of the last week’s events.
Beijing has imposed duties of up to 25% on 128 American imports impacting on US$3bn of US exports following President Trump’s decision to import global tariffs on aluminium and steel. Trump is also set to impose on a further US$50bn of Chinese imports citing it as recompense for theft of US companies’ intellectual property by China after an investigation by his administration, although details have yet to be released. China meanwhile has highlighted that it could reciprocate further with tariffs on soy bean imports from the US. Experts fear this is the start of a Sino-US trade war.
The GfK index of UK consumer confidence rose three points to reach -7 in March on the back of personal finances, the general economy and increasing purchase intentions prompting a rosier outlook. The increase in all five of the underlying constituents of the index came despite the extremely cold weather. The survey providers, however, were quick to point out that they would be waiting until the figures in April before they confirm any trend given the score is still negative.
Emmanuel Macron is set to face his toughest task as the country starts three months of rolling strikes with day one nicknamed Black Tuesday. His main focus is on railway workers who currently enjoy a job for life and an automatic annual pay increase, among other benefits in what is seen as a gold plated employment contract. Set to hit two out of every five operating days, all four of France’s rail unions have joined together to support the action. Meanwhile, other unions are also calling for strikes. Air France is now on its fourth day of industrial action, and more action is set to hit the energy and waste collection sectors. Students are also set to hit the streets as they strike against tougher university entry standards.
The US economy expanded at a rate of 2.9% in Q4 2017 according to the Commerce Department – a rate that was much better than Wall Street analysts expected and close to President Trump’s goal of 3%.The strong growth came largely from Americans spending more, given that consumption accounts for about 70% of economic growth and was an significant upwards revision from the government’s previous forecast of 2.5%. The increase also means that the US economy grew from April through to December at an average of 3.1%, which the Trump administration is likely to herald as evidence that its economic policies are working.
The increase in volatility seems to have taken some investors by surprise, although the level of market movement seen recently is in line with historical averages. And while stocks have tended to trend down, we believe that much of the focus of the sell off in the S&P 500 has been related to tech stocks. However, the economic backdrop should still yield positive results for US firms and US tax reforms are likely to boost the economy still further. Meanwhile, the outlook for corporate earnings continues to be encouraging for stocks. As a result we have added to our allocation to the US stockmarket through the purchase of an S&P 500 futures contract. But, with an eye to the volatility, we have also put in place a put spread on the S&P 500 with a higher strike price of 2,600 and a lower strike of 1,950 which should protect the portfolios if bad news continue to sway sentiment.
THREE ANNOUNCEMENTS DUE THIS WEEK
04 Apr – Eurozone Unemployment Rate (Feb) // 05 Apr – UK Services PMI (Mar) // 05 Apr – US Balance of Trade (Feb)
SOURCES: BLOOMBERG, GFK, REUTERS, 7IM
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