HL commentary as it happens

Investors stay wary given outlook for global economy, pushing down oil prices

Oil prices have dropped to lows not seen for four months, amid concerns about the effect of widespread tariffs on global growth prospects and energy demand. Hopes that a ceasefire in Ukraine could be back on the cards, which could eventually see more sanctions lifted on Russian oil flows, has also had an impact. The oil cartel OPEC+ is also planning to phase out production cuts starting in April, which will see more crude available on world markets, which is also helping push down prices, with brent trading below $71 a barrel.

Rachel Reeves' spending decisions look tougher amid defence drive

With defence moving front and centre of the UK government’s priorities, and those of its allies, the Treasury is mulling tough spending decisions for other government departments. It appears cuts to the overseas aid budget alone won’t cut it when it comes to bolstering the defence capabilities needed, if Europe is to take over more of the heavy lifting of deterrence, faced with an increasingly reluctant US. Opening up the National Wealth Fund to include military projects as well as green schemes looks set to be part of the plan. Tax receipts also came in lower than expected in January and government borrowing costs have risen, which puts the Treasury in a trickier position. This is partly due to broader bond market movements, sparked by inflation concerns around the effect of Trump’s trade policy. The Chancellor has also warned that even if the UK escapes the full force of front-line tariffs, it won’t be immune from a global trade war, which could further dent the tax take and the money the government has available to spend in the future.

European fashion houses among hardest hit by tariff threats

With the real threat of US tariffs being imposed on goods imported from the European Union, big European fashion houses have been suffering, given that they are likely to be caught in the crossfires of the trade war. The luxury power houses are among the big fallers this week, with expectations that price hikes for US consumers will dent sales for their wardrobes of high-end brands. Although some recovery is on the cards, given the signs of strength in the key Chinese market, risks remain, especially with US consumers becoming more cautious, which look set to dent sales for aspirational purchases.

Some hopes of tariffs reprieve for Canada and Mexico help lift sentiment

Although Trump ramped up the rhetoric when it comes to trade, promising reciprocal tariffs on more trade partners, there are some shards of hope that high tariffs could be a negotiating tactic rather than set long-term trade policy. It comes after the US Commerce Secretary Howard Lutnick has dangled the possibility that Trump could announce a deal to reduce the duties on Mexico and Canada as soon as today, citing pledges on reducing fentanyl drug flows as the reason.

Wall Street futures indicate a small rebound for stocks from the battering of recent days, which have seen the post-election bump erased. However, more broadly Donald Trump’s declaration that he’s ‘just getting started’ in his wrecking ball approach to trade agreements and international relations, will do little to change the sense of unease spreading the impact of US policy on the global economy.

With threats to reclaim the Panama Canal and take over Greenland featuring in his speech in Congress, unpredictable foreign policy looks set to stay the norm. Ultimately investors are recognising that US policy making is set to stay capricious and the Trump administration is willing to bring in policies which will damage the US economy and reverberate around the world, to appeal to his domestic fanbase, which is likely to keep a big bounce-back in check.

Hopes are revived for a peace deal for Ukraine in Trump’s address to US Congress

Expectations have risen that US relations with Ukraine are warming up from the ice-cold intensity of Friday’s Oval Office meeting between Trump, Vance and Zelensky. Trump brandished a letter from the Ukrainian President, in his address to Congress, which he said indicated Kyiv was ready to come to the negotiating table. The renewed willingness from Zelensky to sign a minerals deal has led to hopes that a way can be found out of a diplomatic quagmire, which has eased some geopolitics fears.

FTSE 100 regains some ground after Tuesday’s losses

After a tortuous Tuesday for global markets, investors have clung onto sparks of positivity which have helped the FTSE 100 make some gains in early trade, although it’s tentative progress. Hopes are rising that a Ukraine peace deal could be back on, China’s latest services snapshot shows promise and there are even some glimmers of possibility that some reprieve from punishing tariffs could be in sight. The closely watched Caixin China General Services PMI unexpectedly showed that the sector is in better health than expected. Instead of falling back as forecast, the reading increased to 51.4 in February, up from January’s four-month low of 51.0, with anything above 50 indicating growth. There’s been a rise in new business and an increase in sales overseas, adding to hopes that the Chinese economy may be able to withstand punishing US tariffs in a bit more of a resilient fashion.