14 March 2018

It's all about trade

The revolving doors at the White House continue to see advisers leaving the Oval office.


The latest departure, Gary Kohn – a top economic adviser and an advocate of free trade, was a consequence of President Trump announcing that he planned to introduce tariffs on steel and aluminium. Indeed, fears of a trade war did unsettle markets, though a stronger subsequent performance from US markets allowed something of a recovery to develop around the world.

There is quite a bit of big picture stuff taking place for investors to get their teeth into. As well as the publication of the US non-farm payroll report, both the European Central Bank and the Bank of Japan are due to issue statements on monetary policy. In America, markets are expecting a robust increase in jobs in the report, with 200,000 extra expected. The downside could be wage inflation as last months near 3% rise in average earnings triggered a sell-off of shares.

Meanwhile, Brexit continues to lurk in the background, with Vauxhall warning that lack of clarity over our leaving terms could put the future of Ellesmere Port into doubt. The uncertain result of the Italian elections hardly helps either, though it may comfort some hard line leavers here at home. Still, markets have managed to shrug aside any fears that the rise of Eurosceptic parties in Italy might engender.

On a more positive front, a survey of purchasing managers in the service sector here in the UK suggests they are more upbeat than had been previously thought. These so-called Purchasing Managers Indices, or PMIs, are reckoned to be one of the best forward indicators of economic progress. The indication from the February survey is of growth in our economic output of 0.4% for the first quarter of this year – ahead of previous expectations. Given the importance of the service sector to our domestic economy, this was encouraging news.

This helped the pound a little, though the vagaries of our discussions over leaving the European Union continues to exert a pull both ways on the currency, depending who appears to have the upper hand at the time. It is a little alarming to realise we are just a year away from our departure from the EU. The discussions are likely to dominate market sentiment over this period, with swings in both directions taking place.

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