Concerns over trade dispute dominate the start of the week in the markets

The start of the week has been heavily coloured by growing trade tensions not only between the US and China but also the US and most of its major trade partners; all major European bourses and the FTSE opened lower Monday. 

Trump threatens “more than reciprocity”

The US markets finished Friday on a mixed note with the DJIA closing 0.5% higher, the S&P500 0.2% higher and the Nasdaq 0.5% lower as the global trade tit-for-tat continued. 

However, the respite in the markets proved short-lived and blows from all sides continued over the weekend with President Trump threatening to bring in a 20% tariff on imports of European cars and European officials saying that they will retaliate if that happens.

Trump followed this up with a tweet to all US trade partners insisting that countries that have placed tariffs on US imports remove those tariffs or “be met with more than reciprocity”. Both the euro and sterling have weakened in response, both trading down against the dollar.

BoE warns of knock-on effect from China’s economy

Amidst this trade dispute, which has China at its centre, the Bank of England has warned that a weakening of China’s economy poses a greater risk to the UK’s financial stability than previously realised – a 3% drop in China’s GDP would result in a 0.5% decline in the UK’s GDP. 

The Bank’s governor Mark Carney is likely to shed more light on how this will affect the UK economy when he delivers the UK Stability Report this Wednesday.

Oil prices drop as OPEC agrees on output hike

Oil prices declined over the weekend after OPEC members agreed to increase output by 1 million barrels a day to prevent prices from moving any higher. Brent crude showed a fairly strong reaction, trading down 1.7% Monday. 

WTI, which depends more strongly on domestic US supply and demand and less on international trade flows, changed only a little, trading down 0.2%. The agreed production increase is partially designed to plug a loss of output from Venezuela and Iran and will come onto the market in an organised fashion.