- The FTSE 100 continues its longest winning streak since 2017.
- China shows weakness in manufacturing, putting pressure on energy prices.
- Trump stays defiant in the face of market turmoil as he marks 100 days in office.
- Amazon backtracks on plan to highlight cost of tariffs on some goods.
- Marks and Spencer’s cyber chaos continues as hackers reportedly identified.
- Volkswagen and Aston Martin count the cost of tariffs on the car industry.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
“There’s a footloose feeling to the footsie, with the blue-chip index shrugging off global economic worries and heading higher on a winning streak. It’s already clocked the best run since early 2017, and investors appear to have appetite for the defensive nature of the index, as they look set to tiptoe round more volatile US assets.
Nevertheless, concerns about US tariffs are resurfacing, after a defiant Trump rallied his supporters, and a weaker than expected manufacturing update from China added to concerns about global growth prospects. Brent Crude prices have slipped back again, towards $62 a barrel, and are hovering at a three-week low amid expectations of lower energy demand around the world. There will be disappointment that the White House sees the UK as second order priority when it comes to a potential trade agreement. But given the queue of countries lining up to negotiate for a better deal, some facing much more punishing duties, it’s hardly surprising.
Despite the market turmoil unleashed since his inauguration, President Trump was not in conciliatory mood but on the attack as he celebrated his 100 days in office surrounded by maga-faithful in Michigan. The President channelled the ‘80s group Starship, claiming nothing was going to stop him, and he promised profound change. With Trump appearing more steadfast in his commitment to boost US manufacturing, it’s causing fresh unease to spread, with the S&P 500 set to end its run of gains this week. He has also renewed his criticism of Fed Chair Jerome Powell, which is also unsettling, given the independence of the central bank is seen as important for financial stability. Trump has offered some concessions to the hard-hit auto industry, by offering a limited rebate on the 25% import tariffs on components, if the vehicles are assembled in the US, but it’s a small gesture given the huge swathe of duties set to hit the US economy. Importers have been stockpiling goods to try to limit the immediate damage, which has caused the US trade deficit to swell to record levels, the exact opposite of what the administration wants to see. Investors are bracing for a snapshot of growth in the economy later, with the GDP reading for the first quarter set to show a sharp slowdown in activity, and that’s before Trump’s infamous Liberation Day speech prompted a further deterioration in sentiment. Investors have been hanging onto hopes for the pause in many tariffs to become permanent, and for a rapproachment between the US and China, but the outlook is still clouded.
Amazon was considering giving shoppers on its low-cost US site more clarity about the costs of tariffs but has been forced to backtrack after a fiery response from the White House. Press secretary Karoline Leavitt called the potential move a hostile act. Amazon is one of the tech giants being hit hard by Trump’s policies, given how reliant the majority of its sellers are on imports. Bezos was one of the tech bros who attended Trump’s inauguration, who would have expected their companies to come up smelling of roses but instead have had to deal with the damaging thorns of US trade policy.
Although on the face of it Chinese authorities say their growth targets are on track for this year, data from the manufacturing sector highlight fresh weakness in the economy. The closely watched official NBS Manufacturing PMI fell by more than expected, to 49 in April, with anything below 50 indicating a contraction. This has come despite stimulus aimed at supporting industry and before the full effect of onerous US tariff policy. While there are still hopes a deal will be done between the US and China, the signs are not good for activity in the world’s second largest economy.
The Marks and Spencer cyber chaos is still without end, with the financial damage to the company piling up. While other retailers have been hit with IT problems, and breaches in the past, the duration of this crisis is worrying, and it’s infiltrating every part of the business – from contactless payments, to online orders and availability of goods in store. This is not just a hack, it’s an M&S hack. It’s being reported that the group behind the attack has been identified as Scattered Spider, who have been known to hold corporate victims to ransom. As the company appear to be making progress in its investigation, shares have risen in early trade. Nevertheless, the disruption has been hugely damaging given how reliant M&S is on orders made through its website and delivered to stores or homes, enabling it to combine a reduced real estate footprint and a deep well of online custom. Its digital transformation plan was aiming to increase the proportion of its clothing and home sales made online to 50%. This is clearly a big setback and although it’s unlikely to derail it completely, plans will depend on getting to the root cause of the crisis and setting up more resilient frameworks to stop this happening again.
With overseas automakers in Trump’s sights, it’s a highly testing time for European car markers. Volkswagen now expects profit margins to come in at the bottom range of its forecasts. It’s earnings were hammered for the first quarter, dropping 40%. The tariff wars could not come at a worse time for European car makers, as demand for EVs has wavered, and consumers have baulked at spending on big ticket items. Aston Martin is clinging onto the guidance issued this year, but is limiting exports to the US amid the turmoil. With more here’s my colleague Aarin Chiekrie, equity analyst, Hargreaves Lansdown:
“Aston Martin continues to burn through cash on its road to redemption, and there are big hopes that the release of its Valhalla supercar in the second half can drive a return to profitability. Liquidity is a key metric to watch. There’s currently around £400mn available, with the previously announced Yew Tree investment and sale of its stake in its Formula One team set to bring in a further £125mn of funds. But as things stand, Aston Martin’s burning through its cash resources, with losses widening in the first quarter. The net debt pile’s growing too, with much of this carrying double-digit interest rates, meaning the group’s fighting an uphill battle.
US tariffs are another obstacle on the difficult road ahead. Aston Martin’s limiting imports to the US for now and leveraging inventories already based across the pond. But that’s a short-term solution. The group’s relying on growth in the region to help fuel a return to profitability this year. Despite this, full-year guidance has been maintained for now, which points to positive free cash flows and profits in the second half. But given that the US accounted for nearly 40% of its revenue last year, it’s difficult to imagine Aston Martin meeting its full-year targets unless tariffs are eased.
