HL commentary as it happens

Brent Crude rises as supply concerns swirl with oil imports targeted

Brent Crude has gained ground as traders assess the risks to the supply of oil on world markets. Canadian crude imports into the US will be slammed with a 10% tariff pushing up the costs for US refiners, while energy imports from Mexico will face a 25% tax. However, longer term the outlook for oil is clouded in fresh uncertainty. There may be downward pressure ahead as an escalating tariff war. encompassing more and more countries globally is likely to weigh on energy demand.

Dollar gains ground amid concerns that the trade war will re-ignite inflation

With the dollar flexing more muscle, there’s already a risk that inflation could be imported to other countries which are highly reliant on raw materials priced in dollars. While at an interest rate cut is still widely expected from the Bank of England this week, there is likely to be trepidation voiced among policymakers about the risks ahead from a global trade war. However, it could end up denting global growth prospects, and forcing big companies to reduce prices to stay competitive, which may end up increasing the chances of further rate cuts ahead.

Investors are bracing for a rollercoaster ride ahead

Investors are rattled at the prospects of a full-blown trade war breaking out after the US slapped punishing tariffs on Canada, Mexico and China, prompting retaliation. Investors are buckling up for a rollercoaster ride for the global economy, with the European Union expected to be next in line for punitive duties. The FTSE 100 opened lower, stopped in its tracks with the record run upwards going into reverse. It fell sharply in early trade amid worries that listed multinationals could be caught in the cross-fires of the trade wars. Japan’s Nikkei traded sharply lower, as investors assessed the repercussions for big corporates. European indices are also set for a rocky day of trading and Wall Street is set to open firmly in the red.

What was considered to be bluff and bluster from Trump has turned into cold hard reality. But President Trump is no longer the only one playing hardball. Canada’s outgoing Prime Minister Trudeau immediately imposed tit-for-tat 25% tariffs on $155bn in US imports. Mexico’s President has also ordered retaliatory action. These new aggressive actions on what used to be neighbouring allies, are the modus operandi of the new Trump administration, and part of not just trade policy but national security strategy. They’ve been imposed, not simply because of goods surpluses with the US, but over claims there’s been a lack surveillance on the borders enabling fentanyl to pass through and fuel the US opioid crisis. There is a glimmer of hope that a long-running dispute could be averted with a flurry of calls expected between Trump the leaders of Canada and Mexico, with China also counting on talks. But what’s clear is that Trump is way of doing business is to sow seeds of chaos and unpredictability to gain domestic political wins.

The fast-developing situation has re-ignited inflation concerns, given that tariffs are set to push up consumer prices. Canadians have already been warned they face tough times ahead, and even Trump has warned there may be some pain for Americans. While some costs may be able to be absorbed by importers and retailers, the burden is set to be passed onto customers in the form of higher prices which risks adding to inflationary pressures. Higher-for-longer rates in the US risk weighing on consumer sentiment and their purchasing power and ultimately effect economic growth. The dollar has surged in strength against a basket of currencies, as hopes for rate cuts from the Fed are reassessed once more. It’s highly likely that policymakers will stay highly cautious until it’s become clearer where the fallout will land in the US economy. While billions of dollars raised in tariffs might help put a dent in the US deficit, there’s a risk to American growth prospects ahead. The tariffs are likely to push up costs in the supply chain for US manufacturers, including big tech.

Gold prices glitter near record levels

Fears that inflation could spike again have powered up gold prices, with the precious metal still trading around new record levels. Gold is glittering as a safe haven asset and is proving a big draw to investors looking to diversify portfolios. The value of trades on the Hargreaves Lansdown platform in January have surpassed any month in 2024, including in October, when gold reached previous records. Volumes are also shaping up to be the higher than in any month last year. The volatile moves on US stock markets, caused by shock of rapid progress made by Chinese AI upstart DeepSeek, which threatens the dominance of Silicon Valley may also have helped added extra shine to gold this week.

Trump’s tariff threats hang over Canda, Mexico, and US importers

President Trump is still dangling the threat of imposing tariffs on Canada and Mexico this weekend which continues to unnerve investors. Even though it’s still being seen as a negotiating ploy, its one that is close to the wire. These duties would be collected at the borders from US importers.

While billions of dollars raised in tariffs might help put a dent in the US deficit, there’s a risk to American growth prospects ahead. Although the idea is that these firms would stop buying so many Canadian and Mexican goods and lead to a shift in supply chains. Trump wants to see US producers benefit instead or at least foreign manufacturers in countries without big goods trade surplus with America. But this is wishful thinking, especially in the short term, as such trade changes can take years, if they are possible.

Instead, it’s likely that US importers will simply put the burden of extra costs onto their customers in the form of higher prices. This risks pushing up inflation again, an eventuality the Federal Reserve is well aware of, hence its more cautious stance this week when it comes to interest rate cuts. Higher-for-longer rates in the US risk weighing on economic growth, which has already edged down from 3.1% to 2.3%. But Trump may assess this is a price worth paying, to gain the fiscal headroom duties offer, to bring in his promised tax cuts.

FTSE 100 in the green in early trade at end of record-breaking week

The FTSE 100 has set off on another sprint higher having already reached fresh records, as investors see renewed appeal in London stocks. It’s been a record-breaking week for the Footsie and enthusiasm is still high, with the index up 5% year to date.

Given the volatility this week on Wall Street as investors fret about the trajectory of AI spend, and the impact of Trump’s tariff plans, there’s been a flight to safer havens, offering more reliable returns, where stocks have been undervalued compared to their US peers.

The Dax in Frankfurt has hit record levels this week, despite Germany’s ongoing economic woes. But with the ECB reducing rates again by 0.25% and signalling there are more cuts to come, there is renewed appetite for listed multinationals this side of the pond. Investors are being drawn to their lower valuations, amid a raft of encouraging earnings. There are signs that US customers may be bringing forward bulk orders to avoid punishing tariffs down the road.

Brent Crude hovers around $76 a barrel, at multi-week lows

The lack of clarity about Trump’s position on tariffs is weighing on oil prices, with the benchmark Brent Crude trading around $76 a barrel, at multi-week lows. There’s still concern about the knock-on impact to global trade and the demand for energy. But if tariffs were imposed on crude imports from suppliers in Mexico and Canada, it could increase refinery costs and increase gas prices for Americans, potentially lowering demand. A larger than expected increase in US crude stockpiles is also weighing on prices, with the Energy Information Administration reporting a 3.4-million-barrel rise last week.

FTSE 100 opens up while concerns linger on Wall Street about AI

London’s blue-chip index has found its feet, making a little progress in early trade, unnerved by a slide on Wall Street. Investors stateside still have a case of the jitters, with concerns about the impact of cheap Chinese AI technology on expensive US valuations causing ructions. The overall message of caution emanating from the Federal Reserve has also raised concerns that inflation could be on the march upwards again.

The Fed, as expected, kept interest rates in a holding pattern, but dropped its recent mention of inflation making progress. With threats and speculation flying around about trade tariffs and the potential impact on consumer prices, its little wonder policymakers seem in no rush to cut rates again, especially given the resilience of the US economy.

Rachel Reeves set to announce plans to boost growth

The FTSE 100 has not seen much movement in early trade, with its tech-light make-up making it more immune to the current volatility and thanks to its defensive characteristics, it’s still hanging near recent highs. The pound has strengthened slightly against the dollar, to above $.1.24 which may weigh a little on multinationals with overseas earnings. Brent Crude is trading lower, around $77 a barrel, as Trump’s tariff threats are still causing jitters about the prospects for global growth. The direction of domestically focused stocks may hinge on sentiment surrounding Chancellor Rachel Reeves’ speech later. She’s determined to show she’s going for growth in a big way and is planning to light a bonfire of red tape when it comes to planning regulation. Decisions on airport expansion, particularly a third runway at Heathrow, will be closely watched and could lift airline stocks, give the extra capacity it could provide.

Calm descends after AI turmoil with focus now on Fed decision

Calm has descended on financial markets after the AI upheaval, which triggered a wave of selling, with investors seeing sharp falls as a buying opportunity. Focus is switching to today’s key Fed meeting and the direction of interest rates in the US. Rates being kept on hold is seen as a slam dunk prospect but there will be keen interest in chairman Jerome Powell’s words about the future path ahead, particularly given recent jitters about the prospects of a rate hike this year, which still right now looks unlikely.