31 May 2019

Javier Maquieira

31 May 2019

Good morning,

The last month has been as notorious for climate change protests and Brexit stories as it has been for the trade war between China and the United States.
 
After deal negotiations between Chinese and US trade officials failed at the beginning of the month, the Trump administration decided to increase tariffs on $200bn worth of Chinese imports after accusing China of defaulting on its trade commitments. The Asian superpower responded by ramping up duties on American imports worth $60bn as of June 1. Since then, the clashes between the two countries have extended beyond tariffs to include the global dollar-payments systems, legal extradition, and venture capital.
 
What’s more, the US government has adopted a rather Chinese attitude amid espionage fears by tightening visa rules for Chinese students of science and technology and questioning visiting scholars from Chinese think tanks about government links to the point of cancelling the visas of some.
 
Indeed, the Sino-American trade war is being waged on more than one front and already encompasses the agricultural, mining, and tech sectors – the latter being a key trade point for both countries.
 
As part of the conflict escalation, the US Commerce Department has included Chinese tech giant Huawei in a trade blacklist, preventing the firm from purchasing components from American companies without US government approval. According to the Trump administration, Huawei is being targeted over its ties to Beijing and supposed national security concerns for the US.
 
On the other hand, US President Donald Trump has also hinted that he would make exemptions for the Chinese company in return for trade concessions from China, to which Huawei CEO Ren Zhengfei has responded that the company is ‘fully prepared’ for a tech clash with the US.
 
If the battleground didn’t look messy enough, China has decided to bring the tech and mining fronts together, trying to turn rare earth exports - used by the US in everything from smartphones to X-ray machines - into bargaining chips. However, even though Chinese rare earth imports by the US accounted for 80% of the total required between 2014 and 2017, it may not be the advantage point that Chinese officials wish for, since China’s leverage over these materials peaked in 2010 and the US now stockpiles these imports.
 
The trade war escalation is even more evident at the discourse level. Only weeks after the Chinese state media slammed the US ‘greed and arrogance,’ a spokesperson for China’s Ministry of Foreign Affairs accused Washington of committing ‘naked economic terrorism, chauvinism, and bullying’ on Thursday. Moreover, People’s Daily – the biggest newspaper group in China – replicated the message, echoing a phrase only used around significant conflicts: ‘Don’t say we didn’t warn you.’
 
Meanwhile, global markets are responding to the trade war, with investors adjusting their portfolios accordingly as they expect an enduring conflict that could ‘last their careers.’ Others like Morgan Stanley CEO James Gorman see market collapse as unlikely and say trade talks between China and the US will resume sooner than later as both parties have much to lose.
 
There’s a world of tension beyond Brexit out there.

News

Chancellor of the Exchequer Philip Hammond revealed yesterday that he may back a second referendum on Brexit as he does not rule out running for party leadership if his preference for a parliamentary agreement over EU departure is not represented. In remarks to BBC Radio 4, Hammond said that letting the British people decide either through a general election or another referendum is the only way to break the Brexit deadlock. The chancellor’s comments may also reflect an increasing inclination amongst soft Brexit Conservatives towards a second referendum, which suggests the possibility of a majority for such a vote if Labour finally backs one in the House of Commons.
 
The Liberal Democrats’ deputy leader Jo Swinson confirmed her party leadership bid during BBC Question Time. Ms Swinson, who competes against Sir Ed Davey, former Secretary of State for Energy and Climate Change, said that the UK is looking for a movement to challenge nationalism and populism after the pro-EU Lib Dems took 20.3% of the European election vote, coming second after the Brexit Party. A new poll by YouGov for The Times revealed that Lib Dems would get 24% of the vote in a general election ahead of Nigel Farage’s party on 22%.
 
Donald Trump apparently admitted for the first time in a tweet that Russia helped him get elected in 2016 after former special counsel Robert Mueller hinted at the possibility of an impeachment against Mr Trump. The US president issued a statement attacking Mr Mueller and the conclusions of his 448-page report into Russian election interference, which outlined ten occasions on which Trump may have tried to obstruct justice.

Business & Economy

The Confederation of British Industry warned Tory leadership candidates against an EU departure without a deal. In an open letter to all Conservative MPs running to succeed Prime Minister Theresa May, the business lobby group’s director general Carolyn Fairbairn said a no-deal Brexit would severely damage businesses, with smaller companies being left unable to afford the preparations needed to leave without a plan, and invited them to meet her members.
 
Woodford Investment Management’s assets dropped from £4.33bn in April to £3.77bn this week, registering a £560m fall in less than four weeks. After a sustained period of weak performance and an accelerating decline that has alarmed some of the most senior executives at the investment fund, investors have withdrawn £187m since the end of April, with an average of £10m leaving the fund every business day. Although the Financial Conduct Authority (FCA) has allegedly not been in direct contact with the company, regulators are examining the fund as Neil Woodford struggles to keep it below a regulatory-imposed limit of 10% invested in unlisted shares through portfolio rebalance. (£)
 
Uber posted losses of £790m ($1bn) in its first financial report after its appearance on Wall Street despite reaching a 20% rise in revenue at £2.5bn for Q1 of 2019. While competition from rivals remains fierce and investment in rider promotions and incentives continues to increase, senior executives at the San Francisco-based firm remain optimistic about its performance. The company, which has seen revenues grow in all markets but Latin America, has been supported by the growth of Uber Eats, its food delivery business.

Markets

What happened yesterday?
London stocks were slightly up after Chancellor Philip Hammond revealed he might support a second referendum to avoid the British deadlock that has had a negative impact on the UK’s car production. By close of trading, the FTSE 100 was up 0.46% at 7,218.16 points, alongside a decrease of 0.1% in the price of sterling against the US dollar at $1.26 and 0.17% on the euro at €1.13.
 
In equity markets, transport operator FirstGroup (up 3.62%) reached a two-year high after announcing the results of a full strategy review that includes the disposal of its Greyhound bus unit and the separation of its First Bus operations in the UK. Hurricane Energy’s (up 6.20%) shares also rose following the expected announcement of first oil at Lancaster in the next few days.
 
On the downside, support services company De La Rue (down 33.99%) was the standout faller after posting a 78 per cent drop in profits, while Pennon (down 1.91%) closed in the red despite announcing a six per cent dividend rise after increasing its full-year underlying revenues.
 
In the face of an escalation in the US-China trade war, the S&P 500 finished 0.2 per cent higher while most major indices in China retreated, with the CSI 300 and Hong Kong’s Hang Seng falling 0.6 and 0.4 per cent respectively.

Finals
Audioboom Group
Charles Stanley Group
DCD Media
Wizz Air Holdings
 
AGMs
Alba Mineral Resources
Barr (A.G.)
Hostelworld Group
Mail.ru Group Ltd GDR (Reg S)
Raven Property Group Limited
Tiziana Life Sciences
Zhejiang Expressway Co 'H' Shares

UK Economic Announcements
(07:00) Nationwide House Price Index
(09:30) Consumer Credit
(09:30) M4 Money Supply
(09:30) Mortgage Approvals
 
Int. Economic Announcements
(07:00) Retail Sales (GER)
(13:30) Personal Consumption Expenditures (US)
(13:30) Personal Income (US)
(13:30) Personal Spending (US)
(14:45) Chicago PMI (US)
(15:00) U. of Michigan Confidence (US)

Columns of Note

Richard Waters writes in the Financial Times about changes happening within Apple ahead of the tech giant’s annual developer conference next week,during which it is expected to drive its biggest-ever push into services. In the wake of a lawsuit from consumers against the firm over the alleged anti-competitive nature of the App Store and amid criticism from companies like Spotify, Waters opines that Apple’s interests and those of third-party developers are likely to diverge if the company’s services continue to receive preferential treatment in Apple’s own software platform. (£)
 
Writing in The GuardianGary Younge argues that the battle against hate and xenophobia that the UK is facing – alongside other countries – is not new and has been fought over decades as people deliberately choose to forget shameful events of our recent history and focus on ideas of a glorious past driven by ‘implausible deniability.’ Younge concludes that amnesia about the brutality of some recent historic events appears to be a privilege of the powerful, with the consequences affecting society at large.

Did you know?

Socks are the most needed but least donated items in homeless shelters.

Parliamentary highlights

TODAY
 
House of Commons
 
In recess until Tuesday 4 June 2019
 
House of Lords
 
In recess until Tuesday 4 June 2019
 
Scottish Parliament
 
No business scheduled