Uncertainty will continue to play a matinee idol role on global stock markets in perpetuity!
by David Buik · LBCBy David Buik
President Trump left the world in no doubt that tariffs were on the way.
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However, having the likes of experienced Wall Street moguls such as Steve Bessant and Howard Lutnick in his cabinet, who have access to the best economists, let alone the Fed, these financial luminaries would have been left in doubt that the implementation of tariffs would leave global trade hanging over a vortex of despair.
They will have been told in words of one syllable that such draconian global tariffs would never be accepted by knowledgeable international investors, especially those on Wall Street, which are of a most unforgiving nature.
It did not take long for the market to realise that tariffs of this magnitude are inflationary. They leave the consumer in a parlour state, with higher prices to contend with. The appetite of the consumer will inevitably contract. Unemployment will head north and a global recession is almost inevitable.
Markets hate uncertainty and today they have it in spades. Good and bad news they handle with aplomb. Unfortunately, there are too many imponderables. The market has no idea whether these are Trump’s opening shots across the bows. How long will it take before negotiations start? How much retaliation can the US expect from its main counterparties?
The uncertainty is acute. It took until just after 5.00pm EST last Wednesday before the futures market got to work taking the S&P and the NASDAQ down 2.5% and 3% respectively.
Today, investors vented their spleen and ruthlessly sold almost anything that moved. It was metaphorical carnage! Risk appetite disappeared in a heartbeat. At the close the S&P was down 4.84% and the NASDAQ 5.97%.
Just look at the quality of company that received no mercy from investors on the Street of Dreams who were incandescent with rage at Trump’s contempt for the market. NVIDIA -7.81%, AMAZON -8.98%, APPLE -9.25%, UNITED AIRLINES -15.61%, DELTA -10.68%, NIKE -24.56%, CATERPILLAR -8.64%, GOLDMAN -9.21%, JP MORGAN -6.97%, BANK OF AMERICA -11.06%.
The FTSE closed down just over 1.5%. Its exposure to overpriced stocks was limited.
Simon Nixon of ‘Wealth of Nations’ poignantly observed in response to the content of President Trump’s blistering tariff initiative: “Trump just blew up what was left of the global rules-based trading system. Since the 1940s and the launch of the General Agreement on Tariffs and Trade (GATT), it has been a cardinal principle of the global rules-based trading system that countries should treat all members of the World Trade Organisation equally. America has now shattered this principle of non-discrimination by applying very different tariffs to trading partners, ranging from a baseline 10% to the UK and up to 54% on imports from China.”
Investors have consistently misinterpreted the Trump economic agenda at every stage since his election victory in November, not least in assuming that his tariff threats were all about leverage rather than a profound ideological shift in American economic strategy. The result is that global investors backed the truck up with US equities and the dollar, whilst leaving investment in Europe and China on the shelf.
The US stock market has surrendered almost 10% since Trump took office, marking the worst 10-week start under a new president in 24 years (the last one was under then-President George W. Bush during the dot-com selloff). The S&P 500 Index is virtually in a correction over the 52 trading sessions since Inauguration Day.
PM Starmer and Business Secretary Jonathan Reynolds are currently adopting a reflective stance towards the Trump administration in the hope that a trade deal can be cobbled together.
If not, let’s hope they have strident contingency plans in place in response to these unfair tariff demands. The IPPR believes that a 25% tariff on all foreign-made cars threatens 25,000 British jobs at the likes of Jaguar Land Rover and Mini’s Oxford plant. One in eight UK-built cars are exported to the US.
Another concern is that manufacturers from countries facing especially steep tariffs and finding it hard to sell in the US market could product-dump on the UK, killing off some domestic sectors.
The UK appears to be in a good place, when it comes to drugs and medicine. Glaxo SmithKline and Astra Zeneca rallied yesterday on the LSEG, after the White House confirmed that the pharmaceutical sector, along with semiconductors, copper and some lumber products, would be exempt from Trump´s new tariffs. Medical products are one of the UK’s biggest export sectors, with shipments to the US worth £6.6bn last year.
It should not be forgotten that the majority of Britain´s trade with the US is in the services sectors. The UK has a huge surplus in services since it exports £126 billion of services to the US annually while importing £57 billion from America. Fortunately for Britain, Trump´s tariffs do not apply to services.
Apart from Northern Ireland, it is just possible that BREXIT may come to the UK’s rescue, in avoiding the 20% tariff imposed on Brussels. That said, the differential EU/UK tariffs imposed on American exports will create a further trade headache in Northern Ireland. Also there is a question of the European defence plans. The UK finds itself in a sensitive spot. It will not want to alienate the EU, resulting in the UK’s exclusion from a coordinated defence policy.
The next few months will be very challenging for investors. The main enemy is uncertainty. It is a pointless exercise trying to guess what Trump will say or do – a fool’s errand! This morning the FTSE 100 has surrendered more ground. At 10.00am – FTSE 100 continued to ease - 8,354.06 −120.68 (-1.42%). US futures suggest New York will be down by circa 0.75%. Tin hats should be at the ready for the time being.
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David Buik is LBC's Markets Commentator.
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