Asia markets have started the week on the back foot today, with the disruption caused by Typhoon Mangkhut helping to weigh on sentiment, while the weather on trade isn’t any less stormy, on weekend reports that US President Trump is preparing to announce the implementation of 10% tariffs on $200bn worth of Chinese imports, as soon as today.
While the headline number of 10% is lower than the originally feared 25%, the news has still come as a surprise given last week’s reports that talks were set to restart. It certainly doesn’t bode well for a speedy consensus and in a sense could be construed as bad faith on the part of the US, in terms of creating an environment that isn’t really conducive to a positive outcome for any upcoming talks.
This may help explain the reports that China is reluctant to attend any new talks, and may not even engage in any new attempts to open a dialogue, if the stance of the US is to negotiate by way of duress.
European markets, which had a positive week last week, have taken their cues from events in Asia, opening lower, on the back of these reports that we could be back to square one when it comes to the likelihood of any new talks.
The usual suspects are bearing the brunt of the selling pressure early on with basic resource and automakers all falling back, as the prospect of new tariffs, which appeared to have diminished at the end of last week, has once again returned to front of mind. On the FTSE100 Glencore (LON:GLEN), Antofagasta (LON:ANTO) and Anglo American (LON:AAL) are lagging behind, on the back of weakness in industrial metals prices, while in Europe, BMW (MI:BMW), Daimler (LON:0NXX), Peugeot (LON:0NQ9) have all come under pressure.
With all the weather related news it is perhaps surprising that insurers and reinsurers aren’t facing more selling pressure given the damage being inflicted by the US hurricane season, and Florence in particular, as well as Typhoon Mangkhut in Asia.
On the positive side with so much bad news being priced into global retail, and last week’s negative headlines from the UK retail sector, we got a surprisingly upbeat Q3 update from Swedish retailer H & M (LON:0HBP).
Earlier this year the company issued a profit warning, after it had to cut prices in order to shift unsold inventory, and warned of more to come in a difficult retail environment, which sent the shares to 13 year lows. Revenues for Q3 saw a rise of 9% to €6.2bn, and while restructuring costs have continued to act as a drag the end results do appear to be resulting in a much more efficient inventory process.
Oil prices are set to remain in focus this week for both weather related and trade related reasons, after Brent prices retested the $80 a barrel level in the middle of last week. Prices have slipped back since then on the back of fears that rising trade tensions might weigh on demand expectations. Reports over the weekend that Russia and Saudi Arabia energy ministers met to discuss the current market situation also saw prices come under pressure with both parties concerned about the effects too high a price might have on demand.
US markets also look set to take their cues from the slightly softer tone in Asia and Europe, with a slightly lower open.
Despite investor caution US markets have continued to be impervious to the rising trade tensions and the prospect of a widening of tariffs to a range of new Chinese imports. They have remained close to recent record highs despite increasing warnings from CEO’s, like Apple’s Tim Cook who have warned that increased tariffs could well adversely affect US consumers.
Dow Jones is expected to open 45 points lower at 26,109
S&P500 is expected to open 4 points lower at 2,901
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.