European markets are on shaky grounds and the FTSE is trading over 1% lower thanks to simmering trade tensions between the US and China. China has started making its move on two fronts, firstly threatening to constrict the supply of its rare earth minerals to the US and secondly Huawei has launched a legal case in US courts arguing that the country’s decision to restrict the world’s largest network equipment maker was illegal.
China is a dominant producer of rare earth minerals which are used in a variety of specialty applications from computer equipment to aircraft production. The potential tightening of China’s exports would not only cause the cost of specialty metals in the US to spike but could actively impede certain production activity. From an investment point of view though, this has the potential to boost the share price of non-Chinese rare earth producers.
Supermarkets in a frail position
It hasn’t been a good morning for the retail sector and supermarkets in particular as research showed that though the overall market grew by 1.3%; sales of summer staples such as beer, ice cream and sun cream declined sharply as temperatures remained on the south side of 20 degrees.
Marks and Spencer (LON:MKS) is in a particularly precarious position as it could end up losing its spot among FTSE 100 stocks next week when index provider FTSE Russell undertakes its quarterly review. This morning’s 5.5% decline will not help the company’s case as its market capitalization is now close to GBP4 billion. EasyJet is also sailing close to the wind and like M&S could be downgraded into the FTSE 250 but this morning’s decline in its shares has been less pronounced.
European steel production
Although steel production is technically not an economic indicator nevertheless the trend in the industry is a good barometer of the direction of Europe’s economy given that the metal's price is driven by projects related to economic expansion such as construction, house building and car production. In that respect ArcelorMittal’s decision to cut production of steel in Europe will sound warning bells for economists as the Indian steel maker has warned of weak demand and high levels of imports.
The pound is notching lower as the UK’s two main parties are redefining their Brexit positions following European elections. Labour is about to fashion itself as the anti-Brexit party and seems to be readying itself to announce its backing for a second referendum. All this politicking seems too much for sterling which has been in decline for all of this week.
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