Market snapshot: a period of UK exceptionalism?

The Trump dump rumbled on, with investors reluctant to take new positions following the latest carmaker tariff trauma and an important week to come.

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Shares in carmakers across the globe slammed into reverse following the White House announcement of a 25% tariff on imported cars, which domestically wiped 7% from General Motors Co (NYSE:GM) shares and some 4% from Ford Motor Co (NYSE:F).

The sector is now frantically revising its strategy, with the possibility of moving manufacturing hubs to deal with the new taxes. In any event, questions remain around the impact on supply chains which are intertwined globally, perhaps leading to the inevitable conclusion that car prices will simply have to rise in response. Ironically, there was some strength in shares which deal in used cars as an alternative to these potentially higher prices.

Elsewhere, comments from Federal Reserve officials recognised that the likelihood of a new round of inflation was becoming more entrenched, suggesting that interest rates would stay unchanged until more certainty emerges. The Fed’s preferred measure of inflation, the Personal Consumption Expenditures index, will be released later today, where a rise of 2.5% is expected for February year-on-year, equalling the January number, and 0.3% for the month. 

Next week will then herald “Liberation Day” on 2 April, with investors clinging to the faint hope that some of the proposed tariffs might at least be dialled back a fraction. Unfortunately, the scattergun approach of the administration so far has already led to a downturn in consumer confidence and an apparent reticence from businesses either to invest or hire until there is more clarity.

There will also be the release of the latest non-farm payroll figures, which will throw further light on whether the economy is beginning to suffer. In the meantime, the main indices remain in some distress, with the Dow Jones having fallen 0.6%, the S&P500 3.2% and the Nasdaq 7.8% in the year to date.

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Asian markets also suffered from the carmaker carnage, with an estimated three trillion yen, or $20 billion having been wiped from the market cap of Toyota, Honda and Nissan during the course of the week. Meanwhile, China has vowed to open its doors “wider and wider” to foreign trade in an attempt to mitigate some of the tariff pain which is likely to be coming its way, in addition to the stimulus measures already announced to bolster its economic fortunes.

It has also been reported that South Korea, China and Japan will be meeting to discuss economic cooperation in light of the tightening trade environment, with each having skin in the game either through their carmaker or technology exposure to the US. This new bloc perceives that protectionism is on the rise as a result of the current threats and that “severe challenges” to global trade will ensue.

In the UK, a rare glimmer of light for the economy emerged as retail sales grew by 1% in February, against expectations of a 0.4% decline, annualised to 2.2% growth. While the release in isolation does little to brighten the mood, there is the accompanying possibility that wage growth and the imminent uplift to the minimum wage may have left the consumer in a more positive frame of mind than had been feared.

Meanwhile, the annual GDP growth rate for last year was revised higher to 1.5% from a previous 1.4%, although the marginal resulting spike in sterling was short-lived. In contrast the FTSE250 fared slightly better, although its rise did little to improve a year to date performance which has seen a 3.1% decline.

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In investment terms, the FTSE100 remains the saving grace for UK investors and has to some extent been displaying its own brand of exceptionalism. Despite a tepid opening, the index remains ahead by 6% so far this year.

Early features were in relatively short supply, with some profit taking across what have been the more punchy performers of late, such as the banks and the defence companies. The weakness was largely offset by a move towards some of the more traditionally defensive shares, most notably the utilities, which generally carry the additional benefit of attractive dividend yields. More broadly, the defiant progress of the index has caught the attention of investors who had previously eschewed the UK in search of growth-fuelled gains elsewhere.