Worries about a slowdown in global growth and a US recession both escalated this week as relations between the US and China further soured. President Trump also opened up a new trade war front with Mexico.
Stock markets responded to China’s threat to stop exports of rare earth commodities to the US with sharp losses and a rush to the relative safety of government bonds, leading to yields on US Treasuries rising to their highest level in 19 months, stoking concerns about a possible US recession on the horizon.
Recession fears were partially alleviated on Thursday when a report by the US Commerce Department showed US GDP holding up better than expected in the first quarter. It was trimmed to an annualised rate of 3.1%, above analysts’ esti-mates of an adjustment down to 3%. It showed that the US economy was growing well until the escalation of the trade war with China. More recent forecasts about the second quarter are a little more downbeat, and the ongoing trade spat is raising doubts that such a healthy pace of growth can be sustained. Markets were unsettled again on Friday as Donald Trump said overnight that he would impose a 5% tariff on all imports from Mexico from June 10, rising to 25% by Octo-ber, unless the Mexican government curbs illegal immigration into the US.
On home turf there was some rare upbeat news for the property market, as trade association UK Finance released data showing that mortgage approvals had hit their highest level since February 2017, rising from 40,564 in March to 42,989 in April, far above expectations for a reading of 39,500. The data suggests that the market is holding up surprisingly well, given political turmoil and uncertainties over Brexit. The survey includes only seven high street banks but they include around two thirds of the UK market, so are considered representative. Gareth Lewis, commercial director of MT Finance, a lender, said, "These figures are as good as we could expect…house purchases are up, which is encouraging because it means people are still going ahead and buying property even though you might expect them to hold fire because of the political outlook.”
Another barometer of UK consumer sentiment released on Friday also showed Brits to be at their most optimistic in nine months. The long-running Gfk Consumer Confidence index improved from a reading of -13 to a reading of -10, in April. Although the reading is still in negative territory, the lower number suggests the mood is getting better. However, there was a big divide between respondents’ relatively optimistic views of their own financial situation and the far bleaker view of prospects for the broader economy. In addition, consumers appear far more confident than businesses. Samuel Tombs, economist at Pantheon Macroeconomic, said that the gap between consumer and business confidence has grown “from a fissure to a chasm." He said: "While Gfk data shows confidence in the outlook for their personal finances now slightly exceeds its 30-year average, our re-weighted version of the business confidence indices - where the weights reflect sectors' shares of GDP - fell to its lowest level since April 2013 and points to year-over-year GDP growth falling to about 1.0%”
Main source of information: Company Report and Accounts, Bloomberg
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