Global Politics Impact Markets
Written by Gavin Pannu, MSTA, CFTe
Italy’s national election produced no outright winner. Exit polls show a political gridlock with a large number of anti-establishment backing. German Chancellor Merkel formed the fourth government after the SDP voted in favour of another grand coalition. EU and Britain’s politicians locked horns over their respective visions for Brexit, with senior EU figures insisting the UK’s approach was not realistic.
Trade War begins; US President Trump will charge a 25% tariff on foreign steel and a 10% tariff on aluminium but will hold off tariffs on Canada and Mexico exports until trade negotiations and NAFTA deal is completed. The prospect of these tariffs have significantly impacted markets this week and led to a White House fallout, with the popular Chief Economic Advisor Gary Cohen resigning. US iron, steel, and aluminium imports equate to only 0.3% of the country’s GDP.
The Euro fell as the European Central Bank kept interest rates on hold and took steps towards ending quantitative easing. Net asset purchases will run until the end of September or beyond if necessary. They also raised their growth forecast to 2.4% for 2018, up from 2.3%. However concerns over threats of a trade war had dampened the hawkish statement. The head of ECB Mario Draghi mentioned a trade war could be dangerous to the stability of the economy.
Trumps protectionism; The EU set an aggressive battle plan to head off import tariffs. The EU commissioner has set a provisional list which could be applied to US imports to the EU. The EU will hope to be excluded from Trumps measures, and appeal to the World Trade Organisation (WTO). The WTO have confirmed 18 nation members had expressed concern, including Brazil, Russia, India and China (BRIC countries). The EU will announce a swift, firm and proportionate response to the US tax for US made cars and American goods such as Bourbon alcohol and Levi jeans.
Australia and Canada left cash rates unchanged, but both remained bullish as their economies strengthened in the past year with unemployment rates falling. The economy pick-up has been due to a rise in oil and other commodity prices as both countries are large commodity based exporters.
Company news; Rolls Royce shares soared after the firm swung back into profit as major re-structuring takes shape. L&G unveiled better than expected profits and will increase dividends by 7%. Sales of biggest online retailers soar to £8.4bn as growing importance of online shopping comes to the forefront as bricks and mortar businesses struggle with rising rents and hefty business rates with New Look and John Lewis struggling.