Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘’Optimism is evaporating at the end of the week, as the US tariff deadline looms and the signs are that many countries will face higher duties than expected. There’s a distinct lack of Friday fizz for the FTSE 100, as investors mull repercussions for the global economy. Investors are also assessing the implications of the passing of Trump’s big tax cut bill which will add to the mountain of US debt.
The Trump administration is running out of time to do specific detailed trade deals. and the President has said that instead blocs of nations will be informed by letter that they’ll face tariff rates of around 20-30%. It appears we are returning to a diluted form of blanket tariff policy, which sparked marked mayhem in April. Headline rates threatened have come down markedly but the disruption to trade and growth around the world is still set to be significant. Talks with the European Union are continuing and although a deal is expected, it’s likely to be an eleventh-hour agreement. The July 9th deadline won’t mark the end of the tariff story. There are set to be plenty more twists to come, and there is still a lot of expectation baked in that Trump will eventually retreat further from these latest tariffs threats.
Wall Street has been riding high on signals that so far that Trump’s trade policies haven’t yet weakened the economy. The closely watched US jobs report for June signalled much more strength in the labour market than expected. Although it’s wiped out hopes of an interest rate cut this month, it didn’t hit sentiment, which appears more focused on the resilience of the world’s largest economy. Markets are closed for the July 4th holiday but more cautions is set to creep into sentiment and show up when trading resumes on Monday.
The huge and highly controversial tax and spending package passed in Congress, is likely to help stimulate growth in the short term but piles up longer-term financing problems for the US. Trump called it his big, beautiful bill but it risks ending up in an ugly debt spiral. It is forecast to add $3.4 trillion to the huge US debt pile over the next decade. Fans of the tax plan claim it will help boost activity and the tax take but forecasts vary widely about the long-term effect. The Congressional Budget Office estimates it’ll only increase growth by 0.5% over 10 years.
Concerns about the UK’s fiscal position have retreated after Prime Minister made a big display of support for Chancellor Rachel Reeves. With the government intent on projecting an image of unity, it’s helped stabilise the bond markets. 10-year gilt yields, assessed to judge UK government borrowing costs, have returned to levels they were at before Rachel Reeves’ distressed appearance in parliament and sterling has continued to claw back ground. However, there is speculation that given the difficulties the government has faced in finding savings from welfare budgets, tax rises are likely in the Autumn Budget. Bets are rising that the Bank of England will cut interest rates more quickly with a reduction in August increasingly on the cards. So, that’s kept a bit more downwards pressure on sterling.
The price of oil hasn’t shifted much, as traders await the outcome of the OPEC+ meeting on potential production increases. With the global tariff situation still to be decided, Brent Crude is trading around $68 a barrel. For the week it looks set to post a gain of around 2%, recovering from its steepest weekly fall a in over two years after fears of an escalation of the Iran Israel conflict subsided.’’
|
