It’s the old tariff two-step again, the dance traders and investors are getting used to/bored of in equal measure. US President Donald Trump on Friday said China had violated the Swiss truce agreement; China fired back with the same accusation against the US. Markets are risk-off this morning after notching a solid run in May. Doubling of US steel tariffs is also weighing on market sentiment, with stock markets trending weaker this morning in Europe after a decline across Asian markets overnight.
Despite some risk-off moves more generally, the FTSE was holding up a touch better with some help from defence stocks BAE Systems and Rolls Royce as the government outlines plans to boost defence spending. Elsewhere, BP is up a bit despite rumours it’s not getting interest in Castrol above $8bn as crude prices are higher. Fresnillo rose 2 per cent on higher gold and silver prices. More on all that here
On the trade war, it’s all the usual noise. US National Economic Council Director Kevin Hassett said Trump and Chinese President Xi Jinping might discuss trade this week…but whether this happens or not is up for debate. Trump said he will increase US steel and aluminium tariffs from 25 per cent to 50 per cent starting 4 June. And we had that drone strike on Russia – Ukraine looking to come into those peace talks in Turkey with a stronger hand.
But…we’re coming off a good run. Wall Street posted its best monthly gain since November 2023, with the S&P 500 up 6.2 per cent for May, while the Nasdaq rose over 9 per cent for the month…Mag 7 still driving a lot here. The FTSE 100 also rose almost 200pts for the month, enjoying its best month in four. European equities ended May sharply higher, Stoxx 600 up 4 per cent, Dax 7.1 per cent, the best since January. We are in the zone I’ve talked about before – past peak pessimism but past peak optimism and markets seem to be pricing a best case scenario from tariffs right now – 10 per cent across the board and 30 per cent for China.
Palantir jumped more than 7 per cent with reports the Trump administration has tapped the company to compile a mega-database to spy on American citizens. The NYT says “detailed portraits of Americans based on government data is not just a pipe dream”.
Coming up this week, we have a couple of market-moving events from the US, with Fed chair Jerome Powell to speak and nonfarm payrolls data due at the end of the week. Major names scheduled to report this week include CrowdStrike (CRWD), Hewlett Packard Enterprise (HPE), and Broadcom (AVGO).
Finally, IAG flew to the top of the FTSE 100 last month, climbing over 25 per cent during May to make it the top-performing blue chip stock after strong earnings and an easing in tariff worries.
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By Neil Wilson, investor strategist at Saxo UK
