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Trade War Escalates

10 Jul 2018

Jack Turner, Research Analyst

This week we look at the increasing effects of the US tariffs. We also flag three pieces of news from the UK, EU and US, as well as some actions by the investment team following the latest asset allocation decisions.

Trade War Escalates

Countries are beginning to hit back after the US imposed trade tariffs that so far may account for up 0.1% of global GDP. China and Russia were the latest to respond to US moves. But while the total value of affected American exports is still a small fraction of the US$1.55 trillion of goods the United States exported last year, in some industries the pain could be enough. It’s also unclear how the United States can continue in the same vein given it’s involved in a multi-front trade war that, according to the Chinese Ministry of Commerce, is “the biggest trade war in economic history so far”.


Prime Minister Theresa May may yet lose her hold on power following a turbulent weekend. Having sought an agreement, and received one on Friday evening at Chequers, midnight on Sunday 8 July saw David Davis hand in his resignation as Brexit Minister, to be followed by the resignation of Boris Johnson as Foreign Secretary on Monday afternoon. The prominent Brexiteers are joined by a plethora of other EU critics as May proposed a Brexit solution that sought to continue more ties with the European Union than they cared for. The odds are shortening on many a proposed name to replace May as leader of the Conservative party.

Hourly wage costs rose 2% between Q1 2017 and Q2 2018, marking the biggest increase since the start of 2013, according to Eurostat, the European Commission’s statistics bureau. While the region’s recovery has been under way for a few years and unemployment dropped to single digits in the summer of 2016, workers across the 19 member states had benefitted only slowly. Aside from the unions, central bankers are also due to welcome fatter pay packets given the stubbornly-low inflation should tick higher, and nearer the European Central Bank’s target of just under 2%.

Non-farm payrolls rose by a stronger-than-expected 213,000 in June, extending the US economy's long-running growth streak. The manufacturing sector helped drive the gains, adding 36,000 jobs. Meanwhile, the retail sector shed 22,000 positions. This helped unemployment rate tick up to 4% from the 3.8%, although the increase as also supported by more people being encouraged to look for work as a result of the strong labour market. Average hourly earnings rose at an unchanged pace of at 2.7% in June, slower than forecasts of 2.8%.


The results of the latest formal quarterly discussions on asset allocation led to some changes in portfolios, and particularly in the equity asset exposures.

The team have added exposure to the FTSE 100 and FTSE 250 indexes in all but the lowest risk profile portfolios. Using the Balanced profile as an example, the % holdings increased by 1% for both the large cap and mid cap indexes.

Meanwhile, the team cut exposure to European equities in the same risk rated portfolios. Using the Balanced profile again as an example, the % holdings decreased by 1%.

The team will be making further changes to the portfolios this week to bring them in line with their latest tactical asset allocation views.


11 Jul – UK Inflation Rate (Jun) // 12 Jul – US Inflation Rate (Jun) // 12 Jul – EU Industrial Production (May)


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The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.
The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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