Trade War Fears weigh on sentiment

Trade war fears sent US stocks and Asian stocks plummeting overnight, which has transferred across to a sharply lower start in Europe this morning. The opened just 0.5% lower, hitting a low of 7136 early on.

Trump announced that he will place a 25% tariff on steel imports and 10% on aluminium under the pretext of national security. 

Whilst it remains unclear whether these tariffs will be placed on all imports or just those from some countries, the overriding fear is that these protectionist measures will spark a retaliation particularly from China and Europe, but also potentially from Brazil and Canada who are currently the biggest exporters of steel to the US. 

The Dow finished 430 points lower, whilst the S&P closed down 1.6% and the Nasdaq shed 1.7%. US treasury yields also dropped sharply as investors dived into government debt in search of a safe haven, consequently the dollar also fell lower. 

The overnight reaction of lower, US equity markets, lower treasury yields and a weaker dollar mirrors the reaction from President Bush’s attempt to protect the steel industry in 2002, which was also followed by a retaliation from trading partners. 

China and Germany have been quick to respond, expressing grave concerns over the move by Trump. Meanwhile the dax has hit a six-month low. Unsurprisingly industrial metals and industrial engineering stocks are the dominating the lower reaches on the FTSE, both sectors shedding around 2.5% in early trading. 

Construction activity rebounds 

House builders were a rare bright spot on the FTSE this morning after UK Construction activity picked up by more than expected in February, recovering from a heavy fall at the start of the year. 

UK Construction pmi printed at 51.4, significantly above the 50.5 forecast and the 50.2 read from January. Whilst this is an encouraging print, Brexit uncertainties, combined with fragile confidence remain key factors weighing on the sector and are unlikely to clear soon. 

May’s Can’t have cake and eat it speech 

At 13:30 this afternoon, UK Prime Minister will be giving a landmark speech on Brexit. She will use the speech to lay out her vision of the post Brexit UK-EU relationship. 

So far the speeches given by the Prime Minister have all focused on this idea that the UK can “have it all”, cherry picking the bits they want, in short expecting unrealistic and impossible demands to be met. 

The reality is that the UK is leaving and it is not possible to have it all, leaving the regulatory demands of the single market but keeping the benefits is just not a realistic expectation. There are reports suggesting that May could look to give a much more honest speech today, addressing the fact that the UK can’t have anything. 

This could be a difficult speech for pound traders to swallow, potentially leaving sterling vulnerable this afternoon.