LAST WEEK – KEY TAKEAWAYS
Trump announces plans to impose tariffs on up to $60bn in annual imports from China
After months of posturing and outspoken rhetoric, President Trump announced plans on Thursday to penalise China for decades of unfairly acquiring US intellectual property by announcing a plan to impose tariffs on up to $60bn in annual imports from China. This follows President Trump’s decision earlier in the month to impose tariffs of 25% on steel imports and tariffs of 10% on aluminium imports. Numerous countries have now been exempted from the steel and aluminium tariffs, including the EU, Canada, Brazil, Mexico and South Korea, and the hope will be that Trump’s bark turns out to be worse than his bite, and that tensions don’t escalate further. Global equity markets and other risk assets reacted negatively to the news.
Bank of England votes to keep interest rates unchanged………for now
The Bank of England voted by a majority of 7-2 to keep interest rates unchanged at their current level of 0.5%, as was widely expected. However, stronger economic data recently, particularly stronger wage growth, makes a rate rise in May likely. Sterling strengthened in response. Last Wednesday UK workers’ total earnings, including bonuses, rose by 2.8% per annum, ahead of market expectations and marking the biggest three-monthly increase since November 2016. At the same time, the rate of UK year-on-year inflation fell by 0.3% to 2.7%, its lowest rate since July 2017.
Whilst the Federal Reserve raises US interest rates by a further 0.25%
Jay Powell, the new chair of the US central bank, left financial markets largely unmoved as he announced the Fed’s decision to raise US interest rates by 0.25% to a range of 1.50 to 1.75%, and signalled that a further two interest rate hikes would take place in 2018. His statement that ‘there is no sense in the data that we are on the cusp of an acceleration in inflation’ allayed some worries within the market that he would raise interest rates at quicker pace than his predecessor Janet Yellen.
Brexit transition period agreed
The UK and EU agreed to a 21-month Brexit transition period last week – in effect extending Britain’s de facto EU membership until December 2020. In addition, Prime Minister Theresa May agreed to pay a ‘divorce bill’ of £35bn-39bn. During the transition period the UK will continue to pay into the EU budget. Whilst financial markets and sterling welcomed the news, many difficult negotiating topics remain, as key areas such as the Northern Irish boarder are yet to be agreed on.
Approval ratings for Japanese Prime Minister plunge below 40%
The approval rating for Japanese Prime Minister Shinzo Abe fell below 40%, amidst a deepening scandal surrounding the sale of state land, at significantly below its fair value price, to a nationalist school with connections to Mr Abe and his wife. Many Japanese are holding the Prime Minister accountable for doctored documents. The scandal jeopardises Abe’s chances of winning a third term as leader of the Liberal Democratic party later this year.
LOOKING AHEAD - TALKING POINTS
Euro Area Business Confidence Due
Tuesday will unveil the latest insight into the Eurozone’s business climate. Each month, 23,000 companies in the Euro Area are surveyed. The survey results hit an all time high in December 2017, and whilst subsequent results have moderated, business confidence remains near record levels. A rise in the indicator will point to an upswing in activity and an improvement in the business climate.
Source: European Commission, tradingeconomics.com
UK House Prices
Thursday reveals the latest movements in UK house prices, as measured by the Nationwide House Price Index. House prices are important as property accounts for over a third of UK households’ net wealth. Last month year-on-year growth of 2.2% was reported, and this growth is forecast to have marginally quickened to 2.3% year-on-year. However, this is largely due to favourable base effects, demonstrated by the expectations for month-on-month prices to fall 0.3%. Mortgage approvals were recently revealed to be at their weakest levels for three years in December 2017, which along with stuttering house price growth, portray a UK consumer that is cautious due to Brexit uncertainties, rising interest rates and an already heavy debt load.
Annual percentage change in UK house prices, February 2015 – February 2018
Source: Nationwide, ONS
THE OMNIS VIEW
Through a well-diversified approach to asset allocation, the Omnis investment team aims to defend and grow the value of your portfolio through market cycles. Fears have heightened of late surrounding the prospects of a trade war between the US and China. In addition, the high turnover of White House personnel is a cause for concern. There are no winners from a trade war scenario. The Chinese response to President Trump’s tariffs has been quite muted, and we remain optimistic that in the end dialogue and concessions will prevail.
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