- China announces export curbs on rate metals used in semi-conductor chips
- It’s seen as a tit-for-tat move after the US placed bans on some chip exports
- It’s prompted concerns of fresh supply chain snarl ups which could push up prices
- FTSE 100 opens on the back foot amid caution over the geo-political tensions
- Brent crude steadies at $75 a barrel as Russia and China announce production cuts
- Sainsbury’s Q1 sales rise 9% as its efforts to keep prices low draw in shoppers
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’Just when the battle to tame inflation appears to be working, a fresh skirmish in the trade war between the US and China, threatens to snarl up supply chains, potentially pushing up prices.
China’s move to restrict exports of some rare earth metals, used in highly sought-after products such as semi-conductors, appears to be a tit-for-tat move, in response to US curbs on the sales of chips which are in high demand for AI capabilities. Coming just days before Janet Yellen, the US Treasury Secretary is due to visit Beijing, the policy is likely to have been designed to put pressure on the US to release its current export bans and drop further curbs which are expected.
Gallium and Germanium prices jumped after the policy was announced for ‘national security’ reasons. China is the dominant producer of the metals and exported 25% more Gallium last year, compared to 2021 – it’s the base ingredient for made gallium arsenide which is used in the electronics industry, particularly to make semi-conductor wafers which are highly heat resistant. Germanium also has multiple applications in electronics particularly transistors and is used to make lenses for weapons sighting systems. Given that China is such a large exporter, it’ll take considerable time for other producers to ramp up production, which could set off fresh inflationary pressures in industries which had been enjoying some respite as supply chain pressures eased. However, over the longer term it may accelerate moves to make industries around the world to become less dependent on China.
With little end in sight to the trade war, it’s prompted a sense of unease in trading, with the Nikkei dropping back, although profit taking will also have dragged it lower, after the index closed at a new high in the previous session. European markets have opened in cautious mood, with the FTSE 100 falling in early trade after ending yesterday on the back foot. US markets are closed for the July 4 holiday, so the full repercussions of the latest trade war twist won’t emerge on Wall Street until Wednesday.
Oil prices have steadied, with brent crude hovering around $75, as China and Russia announced plans to reduce production. This helped put a floor on prices as worries continue to linger about the strength of demand in the global economy, particularly with US manufacturing activity falling at the sharpest pace in 3 years.
J Sainsbury, Q1 trading statement – Sophie Lund-Yates, lead equity analyst:
“Sainsbury’s has come out the gate swinging, insisting that its efforts to keep prices low have seen shoppers buying a higher number of items, with first-quarter sales rising over 9%. This comes at a time when chatter about unfair profiteering from the big supermarkets has reached fever pitch. This supermarket giant has spent a great deal on reducing prices, especially around Aldi price match campaigns and the introduction of Nectar prices. The main difference is that Sainsbury’s has been able to increase prices behind competitors, which is a huge bonus when trying to win the minds of struggling shoppers. Crucially it appears that food inflation is starting to drop away, albeit slowly, and shoppers will be waiting eagerly to see how quickly that translates into more palatable food bills.
The King’s coronation also translated into a spring in Sainsbury’s step, as customers proved once again that budgets will be stretched when there’s celebration in the air. This is likely to have been a tide that lifted all ships, but there’s no denying the group has executed on a product and proposition turnaround in a faster fashion than expected. The financial year is still in its infancy though, and the questions of demand and margins may have dimmed but they’re certainly still present.”
