Market snapshot: temporary tariff truce boosts sentiment

After an apparently fruitful weekend of talks between the US and China, stock futures are pointing higher ahead of the new trading week.

Markets unsurprisingly drifted on Friday prior to the talks and, while the details will not be confirmed until later this morning, there appears at the very least to have been a de-escalation of the impasse which has plagued the investment landscape over recent weeks. It is unlikely that this particular war is over, but a battle may have been won with the 145% tariffs on China likely to see a significant reduction which would result in a reciprocal move.

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

Nonetheless, the newsflow is driving market sentiment on a daily basis with there still being little room for manoeuvre in actually anticipating the effects of the measures taken so far. The situation has hamstrung investors, companies and consumers alike.

There will be scrutiny later in the week for any impact on the US economy with the release of inflation numbers via the Consumer Price Index and Producer Price Index, while the retail sales figure could show some weakness following a fall in consumer sentiment following a potential hike in import price effects.

There is certainly some justification for the current levels of investor caution, and numbers from Expedia Group Inc (NASDAQ:EXPE) at the end of last week saw a drop of more than 7% in its share price. As has been the case with many travel companies of late, the actual trading numbers have been overshadowed by the accompanying comments, which have highlighted a notable drop in demand for trips to the US given the aggressive stance which has been taken thus far by the White House. The normally brisk trade between Canada and the US has fallen sharply, with declines of 30% or more in the number of travellers making their way south to the States.

The main indices therefore remain unable to shake off their declines, and the fog is unlikely to clear until some clarity is provided. In the year to date, the Dow Jones is down by 3%, the S&P500 by 3.8% and the Nasdaq by 7.2%, although these levels have come off the lows of the initial shock reaction to the escalation of the trade wars.

• Insider: FTSE 100 chief nets millions from share sale
• Shares for the future: this stock’s dropped out of my top 10
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

News of a marginal cooling of tensions between the world’s top two economies also filtered through to Asian markets overnight, where most indices posted gains. The Chinese delegates have perhaps been less effusive in their description around the weekend talks, but the optimism nonetheless bolsters sentiment. Even prior to the spat between the US and China, the latter had been taking stimulative measures in an effort to prop up an economy which was suffering from high youth unemployment, a beleaguered property sector and tepid consumer demand. 

The momentum washed over to UK shores, with both of the main indices opening strongly on hopes for a temporary truce between the major economic powers.

Renewed risk appetite meant that mining stocks were in high demand at the open, closely followed by the banks and Asia-facing stocks such as Prudential (LSE:PRU), offsetting some weakness in the major pharmaceuticals GSK (LSE:GSK) and AstraZeneca (LSE:AZN) following the US President’s most recent threat to introduce sweeping cuts to drug prices.

The strong open consolidated gains in the year to date for the FTSE100, which is now ahead by 5.4%, while also erasing losses for the FTSE250, which has now edged into positive territory with a marginal gain of 0.5% for the year.

• Stockwatch: onwards and upwards for this bank share?
• The Analyst: two funds to exploit rotation out of US assets
• The Week Ahead: Burberry, Compass, National Grid

There will also be what is likely to be an interesting update later in the week from Burberry Group (LSE:BRBY), whose shares have yet to recover from last year’s triple whammy of a change of chief executive, a profit warning and a suspension of the dividend. The full-year results will follow a relatively upbeat third-quarter trading statement, when the company provided a more positive outlook given the early success of its “Burberry Forward” strategy, even floating the possibility that the second half performance could broadly offset the adjusted operating loss of the first.

In the meantime, there remains much ground to recover, and the resultant relegation from the FTSE100 and 34% dip in the share price over the last year will not have been helped by the more recent levels of aggression which may well have impacted its important Asian customer base.