European stock markets are firmly in the red this afternoon as the possibility of a trade war grows. 

Europe

US president, Donald Trump, is expected to announce a round of tariffs in the next few hours. It has been reported that the EU, along with other allies of the US, are exempt from the tariffs for now. With traders fearful of levies sparking a trade war, they are exiting equities.

Reckitt Benckiser have dropped their bid to acquire the healthcare division of Pfizer. The London-listed company were only interested in a portion of the healthcare unit, and since they couldn’t acquire the portion they wanted, they have dropped the takeover attempt. Reckitt Benckiser are in the process of separating its business into two units, and still must fully incorporate Mead Johnson into the business. The stock is up 5% today.

Ted Baker shares are lower today despite the company revealing respectable figures, after they failed to live up to analysts’ estimates. The firm saw profit rise by 12.3% on an 11.4% rise in revenue. The North American operation is outperforming the European business, but the company gave a cautious outlook. The stock is 11.8% weaker today.

US

US indices are lower on the day as President Trump is tipped to announce a series of tariffs on Chinese imports. The move could slap levies on $50 billion worth of imports from China. Dealers are worried this could be the first shot fired in a trade war between the two largest economies in the world.

Investors were very welcoming of Trump’s pro-business tax changes, and the talk of infrastructure projects also received support from dealers. Now Mr Trump is keen to address the trading imbalance between the US and China, and it has sent traders running for cover. Should Mr Trump persist with the tariff policy, it is likely China will retaliate with levies on US imports. 

FX

Despite a fall in US government bond yields, the US dollar is higher. Investors are selling equities, while government securities are in demand.

EUR/USD is in the red as a mixture of underwhelming eurozone economic updates and a firmer US dollar weighed on the currency pair. France and Germany posted their latest manufacturing and services reports, and the updates showed a slowdown in the growth rate, as the reports came in below expectations. The economic indicators out of the eurozone lately have pointed to a cooling of economic activity, and this could keep pressure on the euro.

GBP/USD has been notably volatile today. The higher-than-expected retail sales report from the UK lifted the pound, and then the Bank of England meeting jolted the currency pair, but the move was short-lived. Two of the nine members of the Bank of England’s monetary policy committee (MPC) voted to raise interest rates, catching the market by surprise and sending sterling soaring. The MPC warned that recent snowfalls may impact first-quarter growth, and so could the talk of protectionist policies. These comments from the UK central bank took the edge off the pound, and it turned lower on the session.

Commodities

Gold is a touch lower as traders take their profits from the push higher last night, after the Federal Reserve increased interest rates by 0.25% to 1.75% - meeting expectations. The US central bank is optimistic in its outlook, but isn’t overly worried about inflation. Last night the metal hit a two-week high, and now dealers are locking in some profits. Gold might benefit from the ‘flight to quality’ play over the next few sessions as the talk of a trade war heats up.

WTI and Brent Crude oil have been hit by profit-taking as the oil market has retreated from a six-week high. The energy information agency report yesterday showed a decline in US oil and gasoline stockpiles, which sent the energy market to its highest level since early February. Oil has been in a strong upward trend since June last year, and should that continue, the market could target the 2018 high.

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