The summer is not here yet but the temperature is notching up with US trade rhetoric becoming more threatening. President Trump has directed his ire at Mexico yet again, threatening to bring in tariffs on the country in early June and to gradually increase them to 25% until Mexico stops illegal immigrants entering the US. Britain is also about to face tough Trump love when the US President comes to London next week. At the visit Trump plans to threaten intelligence sharing between the countries if the UK goes ahead with plans to use Huawei to build parts of its 5G network.
European shares have yet to recover from the latest Mexico threat which has caused the FTSE to lose 0.95% and the DAX 1.54%. Unless a miraculous political U-turn materializes later in the day, which is not completely impossible given the US President’s track record, more stock declines are in store when Wall Street opens for trade. The threat to Mexico comes as US–China trade relations are already deteriorating with markets waiting for China's next response.
Sterling’s two steps forward, two steps back
Sterling has managed to recover from its dip yesterday caused by reports that Germany would veto an extension to the October 31 Brexit deadline unless the UK makes some major changes such as a general election or a second referendum. The recovery in sterling/dollar has more to do with the dollar’s weakness in the wake of Trump’s latest trade tweets than any inherent strength in sterling.
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