Today's markets: Sigh of relief as Trump ignores key markets

Well, we were expecting a reaction to now-president Donald Trump’s first day in the Oval Office via currency and Asian stock markets, which happened, but not in the way we thought.

Asian shares were marginally in the green, with the mainland China index, the CSI 300, rising 0.08 per cent in Tuesday’s session, and the Hang Seng up 0.9 per cent. This was after Trump didn’t mention Chinese tariffs in the meaningful way many were expecting. Instead the president focused his economic wrath on neighbours Canada and Mexico, sending both the countries’ currencies down against the dollar. Trump did mention China via TikTok, threatening to invoke tariffs if Byte, the Chinese company owner, didn’t sell the app’s US operations to the government.

Trump’s meandering speech and contentious executive orders also failed to mention tariffs against EU countries in the way we were expecting, instead suggesting tariffs would come if European countries didn’t buy more US oil. Either way, traders are taking the positives with the FTSE 100 up 0.13 per cent in early trading, led by banks (more on that below), and the Cac up 0.05 per cent. Shares in Frankfurt are a little down, but given the exporting nature of the bourse’s constituents, you’d expect more reservation. But overall, the speech had plenty of talking points, both positive and negative for investors, and pretty much gives us a sign of things to come. It’s going to be incredibly volatile going forward, and markets are going to react to things quickly, and perhaps sometimes, incorrectly. So, buckle up. Futures show the US market will open marginally in the green later on. Bitcoin, however, fell from its $109,000 record price after the president did not mention cryptocurrencies at all. He and his wife have launched their own crypto tokens, though, which, well, the less said about the better.

Overall on the tariff front, things were not as extreme as what Trump suggested prior to his inauguration. But they were worse than what traders had hoped for after word came from his team that tariff implementation would be gradual and sensible. Now we have an inflationary impact to consider on top of what this means for the Federal Reserve. Rate cuts are already being pushed back because of the hot economy, add supply-pull inflation into the mix and the central bank has a problem on its hands. Will it ever be able to get back down to 2 per cent? Seems unlikely this year.

Speaking of central banks, it’s another tick in the column for the Bank of England to cut rates next month following the latest employment figures. Unemployment rose to 4.4 per cent with economists expecting it to stay flat at 4.3 per cent. These were the first figures to include the aftermath of the Budget, and as April’s business tax rises near, you can now assume the rate will start to tick up. However, private sector wage growth remains high and rising, at 5.6 per cent, up 0.1 points and above expectations. This puts the Bank somewhat in a bind, as rising unemployment means it has room to cut rates, but wage growth figures suggest it’s also not going to get to its 2 per cent target any time soon. So are we just going to tolerate above-target inflation to make sure we don’t crash the economy? Seems reasonable to me but it does make the BoE’s actions slightly hard to predict. The MPC vote split will become even more interesting.

Seuging from interest rates to mortgages, UK banks are leading the FTSE 100 risers charts this morning after chancellor Rachel Reeves said she backed the Financial Conduct Authority’s plans to loosen mortgage lending rules and allow larger loans to more people. This seems iffy. The rules brought in after 2008 exist for good reason. They proved their worth given repossessions remained fairly tolerable even as mortgage rates nearly doubled overnight, after the Liz Truss mini-Budget. It’s not the lending rules stopping first-time buyers, it’s house prices and earnings. Property is too expensive, and we’re not being paid enough. I’m not sure encouraging banks to lend more fixes either.

By Taha Lokhandwala