Chinese president promises to lower import tariffs, easing fears of trade war
Stock markets are moving higher after a speech by China’s president Xi at the Boao Forum defused some of the fears of a trade war between Beijing and the US. Xi said China would take measures to widen market access for foreign investors and would lower import tariffs on products including cars.
However China is reported to have filed a complaint with the World Trade Organisation over the proposed US tariffs on steel and aluminium.
And investors still face a number of other uncertainties, not least the US sanctions on Russia which has hit the rouble hard.
Elsewhere, Bank of England policymaker Ian McCafferty said the monetary policy committee should not dally over raising UK interest rates given wage growth and the strength of the global economy. The comments gave a lift to the pound.
Meanwhile European Central Bank member Ewald Nowotny said it was time to “normalise” its monetary policy.
And in the US, producer prices rose by more than expected in March, giving more ammunition to the Federal Reserve to increase borrowing costs.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
With trade war fears easing after the overnight speech from Chinese president Xi, US markets have opened sharply higher.
The Dow Jones Industrial Average is currently 390 points or 1.63% higher, while the S&P 500 is up 1.36% and the Nasdaq Composite has climbed 1.65%.
Commenting on the Xi speech to Reuters, strategist Art Hogan at Wunderlich Securities in New York said:
Back with the Boao Forum in China, and the managing director of the International Monetary Fund has also had talks with president Xi:
Stronger than forecast US producer price figures for March give more ammunition for the Federal Reserve to raise interest rates again later this year.
The Fed has indicated it could increased borrowing costs another two times in 2018 but some expect another rise on top of that if the economic data merits it.
So a 0.3% rise in the producer price index last month adds fuel to those expectations. That is an increase from the 0.2% rise in February, and higher than analyst forecasts of 0.1%. The year on year increase in March was 3%, up from 2.8% in the previous month and ahead of the 2.9% expected.
The Fed’s preferred inflation measure, the personal consumption expenditures index, rose to 1.6% after being at 1.5% for four months.
The Bureau of Labor Statistics, which released the data, said:
A major factor in the March advance in prices for final demand services was the index for outpatient care (partial), which climbed 0.4 percent. The indexes for machinery, equipment, parts, and supplies wholesaling; cable and satellite subscriber services; airline passenger services; food and alcohol wholesaling; and hospital inpatient care also moved higher. In contrast, margins for automotive fuels and lubricants retailing fell 10.4 percent. The indexes for apparel, footwear, and accessories retailing and wireless telecommunications services also decreased.
As a sign things are a little calmer on the stock markets at the moment, the VIX volatility index – which had been rising in recent days – is currently down 5% at 20.61.
That is not to say there are not a number of uncertainties for investors, from the US/China trade dispute, the situation in Syria, Russian sanctions and the latest on the Mueller investigation in the US.
European stock markets are holding on to their gains, and Wall Street is still expected to open sharplyhigher. Connor Campbell, financial analyst at Spreadex, said:
The Dow Jones is all set to leap 320 points after the bell, a chunky jump that would take the beleaguered index to 24300, pushing it towards the top end of its recent trading bracket.
However, it is important to note that the US open and close can often operate in completely different universes, especially if Trump gives into his urge to cause a bit of Twitter chaos.
The pound has hit a day’s high of $1.4179, up 0.38% on the talk of further interest rate rises. David Cheetham, chief market analyst at XTB, said:
Sterling has moved higher after some hawkish comments from BoE member McCafferty in which he cautioned fellow rate-setters against dallying when it comes to further tightening monetary policy. McCafferty was one of two dissenters who called for higher rates at the last meeting when the bank decided to keep its policy unchanged and his recent comments have pushed the pound/dollar rate to its highest level in more than a fortnight.
With the bank expected to raise rates next month, remarks from the voting members will take on a greater importance in the coming weeks with the previous hike in November – the first such increase in more than a decade – being widely telegraphed in advance.
Despite the slump in the rouble, Russia’s central bank has no plans to introduce any measures to reduce volatility.
The bank’s first deputy chairman Sergei Shvetsov said the situation with the rouble was “adequate”, according to Reuters.
At the time London stock exchange chief executive Xavier Rolet said:
We warmly congratulate Mr Sokov and his management team on their successful IPO today. Welcoming En+ Group to London Stock Exchange is a significant milestone which underlines the City’s position as the leading global listing venue for international companies and investors’ appetite for Russian issuers. With 100 Russian and CIS businesses listed and traded on London’s markets, with a total capitalisation of over $550 billion, London is a strong partner to Russian companies seeking access to global investor capital, as well as an open and dynamic place to do business.
The average British household benefited from the Bank of England’s emergency interest rate cut in the financial crisis to the tune of almost £9,000 in pay and £90,000 in household wealth, according to its chief economist.
Speaking in Australia, Andy Haldane is defending some of the benefits from low interest rates just before Threadneedle Street looks to increase them to levels unseen since the 2008 crash began.
According to him, the impact of low rates and quantitative easing has been to keep more people in work – helping them with their earnings – and to keep borrowing costs cheap to help cut mortgage costs. Asset prices have also been inflated, helping those who held them – even if they got less on their cash savings held in bank accounts.
The significance of the loose monetary policy from the Bank is so significant, he says, that GDP in the UK would have been around 8% lower, unemployment 4 percentage points higher and the level of consumer prices 20% lower without its package to cut rates to 0.5% and inject £435bn into the economy through QE.
Just 4% of households were made £500 or more worse off when taking income and wealth effects together, he says.