Equity markets have come under pressure from the US’s latest announcement to impose tariffs on Chinese goods. 

Investors are getting nervous as the US and China have stepped one foot closer to a trade war.

Rolls Royce shares are higher today after the company issued ambitious targets. The announcement comes one day after the engineering firm set out plans to trim the head count by 4,600, largely in management and support services roles. Rolls Royce confirmed it is now in a good position to achieve its target of £1 billion free cashflow by 2020, and it now expects medium-term free cashflow to be £1 per share, compared with the old target of 15p. The share price hit a three-year high, and if the upward move continues it could target the 1,050p area.

Tesco shares are in demand after the company posted respectable first-quarter UK sales figures. On a like-for-like basis, sales jumped by 2.1%, the tenth straight quarterly rise. Analysts were anticipating growth of 1.7-2.5%, so the report was in the middle of the range. Tesco said its growth plans are going according to plan, and the Booker merger is also proceeding well. The stock hit its highest level in nearly four years, and if the bullish move continues it could target 280p.

H&M shares are in the red after the clothing retailer confirmed that second-quarter sales in the local currency including VAT were flat, and the figure was just shy of forecasts. Earlier this year, the company announced a tumble in profit. H&M blamed its deep price-discounting strategy and the cold weather for the underwhelming performance. The stock has been losing ground for over three years, and it appears that negative trend will continue.

US

Stocks are in the red after President Trump announced plans to impose a 25% tariff on up to $50 billion worth of Chinese goods, and warned more could be in the pipeline. Earlier today, Beijing confirmed it will respond with ‘appropriate’ measures should the US press ahead with levies. It appears that trade tensions are heating up, and dealers are jumping out of stocks. Boeing, Caterpillar and 3M are weaker today as traders are anticipating a reaction from China, as the sectors these companies are in could be in the firing line.

The University of Michigan consumer sentiment index jumped to 99.3 in June, up from 98 in May, and the consensus estimate was for 98.5. This suggests consumers are keen to spend, which bodes well for the economy.

FX

EUR/USD has bounced back after yesterday’s major sell-off. The single currency is higher on account of short covering and bargain hunting. Eurozone CPI in May came in at 1.9%, meeting economists’ expectations. The currency pair has been in a downward trend since mid-April, and while its remains below the $1.1850 area, its outlook could remain negative.

GBP/USD hasn’t moved much today as there were no major economic announcements from the UK. The US dollar has been dominant this week, and the currency pair remains in a downward trend. If it breaks below $1.3204 it could pave the way for $1.3027 to be tested. The Bank of England meeting next week could give the markets an insight about future policy, but sterling bulls won’t be holding their breath.

Commodities

Gold has sold off this afternoon. The metal started to lose ground shortly after the US announced it is imposing 25% tariffs on $50 billion of Chinese goods. Protectionist policies often cause inflation to rise, and this could be contributing to the pressure on gold. If the metal breaks below $1,282, it could target $1,270.

WTI and Brent Crude oil are in the red as there is mounting speculation that Saudi Arabia and Russia will increase supply. OPECmembers will begin their two-day meeting next Thursday, and traders are gearing up for an increase in output. It was reported that the US asked OPEC to boost output by 1 million barrels per day, in order to bring down the cost of living. 

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