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Fear of trade war after trump tariff plan


US developments were prominent this week, as President Trump announced tariffs on Chinese imports, raising fears of a trade war, and the Federal Reserve increased interest rates to a new target range of 1.5%-1.75%.

On Thursday, President Trump announced tariffs on up to $60bn of Chinese imports, declaring that Beijing needed to pay the price for decades of unfairly acquiring US intellectual property.

China, having said it would "fight to the end" in any trade war with the US, hit back on Friday with plans for tariffs on 128 US products accounting for about $3bn in imports.

Meanwhile, new Fed chair Jay Powell presided over his first rate-setting meeting which, as expected, resulted in a quarter-point increase in the Federal Funds rate.   

The Fed still expects to raise interest rates three times overall in 2018, but is now projecting an extra increase in 2019. 

Back in the UK, the Bank of England kept interest rates on hold at 0.5%. This followed a bigger than expected drop in inflation in February. Consumer prices were 2.7% higher compared to a year earlier, according to the Office for National Statistics (ONS), down from 3% in January.

The decline called into question whether UK interest rates will rise as quickly as previously predicted, though many economists still expect rate rise in May.

Guy Foster, Brewin Dolphin’s Head of Research, foresees three rate hikes over the next 12 months, taking the base rate to 1.25%. 

UK wages rose at their fastest pace in nearly two-and-a-half years: 2.6% excluding bonuses in the three months to January. Average earnings including bonuses rose 2.8% from the same period a year earlier.

The unemployment rate reduced to 4.3% in January from 4.4% in December – its lowest level since 1975. The number of people in work rose to 32.25m – up 400,000 in a year and lifting the employment rate to 75.3%, its highest since records began in 1971.

There was also positive news on retail sales, which increased more than expected during February. Sales grew by 0.8% over the month, with a year-on-year increase of 1.5%, said the ONS.

ONS figures also showed public sector net borrowing down £2.5bn to £41.4bn in the current financial year-to-date, compared with the same period in 2016/17. 

UK government borrowing this financial year remains on track to be the lowest for a decade.

Click here to read this week's Market Roundup and Company Focus on Bellway 

Important Notes:

Main source of information: Company Report and Accounts, Bloomberg


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