The trade war between China and the US was ramped up on Thursday night as President Trump announced he would raise tariffs on $200bn of imports from China from 10% to 25%, and that remaining imports from China of around $325bn would be taxed at 25%. China has vowed to retaliate in due course. The first of the US tariff hikes came into force from midnight on Thursday, and investors will be keeping a close eye on how trade talks progress in Washington today. Economists said the increase will push the average tariff on all US imports, regardless of their origin, from around 3% to 7.5%, which could in turn add around 0.2% to core inflation and subtract up to 0.75% from US GDP. However, most commentators remain optimistic. The news that Chinese goods already heading to the US won’t incur the new 25% tariffs has effectively provided a ‘grace period’ of between two and four weeks for the two sides to come to an agreement. In addition, the fact that talks are continuing in Washington today is also giving investors a glimmer of hope, and has prevented any panic in the markets.
Back at home, the Office for National Statistics (ONS) released some upbeat data on economic growth on Friday morning. It said that the UK economy expanded by 0.5% in the first quarter, meeting expectations, although the economy contracted by 0.1% in the month of March as output in the construction and services sectors fell. The quarterly figure was helped by record stockpiling in the manufacturing sector when fears of a no-deal Brexit were at their highest. Growth is expected to moderate in the coming months, as some commentators expect ‘Brexit paralysis’ to impact business investment ahead of the delayed Brexit date of October 31.
Halifax reported that house prices rose by 1.1% in April, following a 1.3% drop in March, beating forecasts of a fall of 1.6%. Year-on-year house prices were up by 5% in the three months to April, totally at odds with the forecasts of a 4.5% fall. Samuel Tombs of Pantheon Economics said: “Less volatile measures paint a far more subdued picture. For instance, Rightmove’s measure of online asking prices fell by 0.1% year-over-year in April, while Nationwide’s measure rose by a mere 0.9%.” Furthermore, a survey released by the Royal Institution of Chartered Surveyors on Wednesday relayed a bleak outlook from its membership. It said that the number of properties put up for sale fell at the fastest rate since 2016, and that prices were still under pressure. A net balance of -23% of respondents reported rising prices in April, the same proportion as in March, with London and the South East suffering the most. The outlook for prices in 12 or more months’ time increased slightly, suggesting surveyors feel that some optimism will return to the market once there is some clarity around Brexit.
Earlier in the week, the European Commission cut its growth forecasts for the eurozone, and for Germany in particular, as it factored in the impact of trade wars and a slowing economy in China. It said the eurozone economy as a whole would grow by 1.2% in 2019, down from the 1.3% it forecast in February. If correct, this would be the slowest rate of expansion since the financial crisis. The EC slashed its forecast for German growth to just 0.5% for 2019, down from February’s estimate of 1.1%. Looking further ahead, it said that the eurozone economy should bottom out this year and will accelerate in 2020.
Main source of information: Company Report and Accounts, Bloomberg
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