Donald Trump shattered the temporary ceasefire in the US/Sino trade war when he raised tariffs on $200bn of Chinese goods to 25% and placed the remainder of Chinese imports in his sights. The next phase of the battle will be especially painful as most of the clothes worn by Americans are made in China as are the phones and laptops they love.
Tuesday saw oil prices jump after Saudi Aramco reported a drone attack on pumping stations. The news came a day after Saudi Arabia reported that two oil tankers were sabotaged off the United Arab Emirates.
As Quilter Investors assistant portfolio manager CJ Cowan observes, “Temperatures are rising daily in the region. Mr Trump’s penchant for gunboat diplomacy means that an aircraft carrier wing is already en route. This raises the risk that clashes with Iran proxies or others could see the situation escalating into a major incident.
“Ironically, one thing holding back the oil price is Trump’s latest salvo in the trade war. By increasing tariffs again he’s cast a shadow over the growth outlook which, for now, is eclipsing the worsening position in the Middle East.”
On Monday China retaliated against the US for further tariffs by announcing higher levies on around $60bn of US goods from 1 June.
The move followed President Donald Trump’s escalation of the trade war last week when the US increased the tariffs on $200bn of Chinese goods to 25% and accused China of “breaking” the deal pieced together during recent negotiations.
China plans to target more than 5,000 US products with the new levies including meat, vegetables, tea and coffee as well as raising tariffs on US liquified natural gas (LNG) from 10% to 25%. Trump and Chinese President Xi Jinping are expected to meet at the G20 summit in June, however, with Trump suggesting it could be a “fruitful” meeting.
The struggling airline sector suffered further blows this week, with Air France announcing job cuts and the removal of some routes while Emirates saw its chief commercial officer resign.
Air France plans to cut 465 ground staff jobs and reduce its domestic flights by 15% over the next two years as it comes under pressure from low-cost rivals and high-speed trains. Meanwhile, Emirates confirmed its CCO had resigned, just days after the airline reported a 69% fall in profits.
These follow the collapse of a number of low-cost airlines amid soaring fuel costs and slower consumer demand. This includes India’s Jet Airways, which saw its leadership team including CEO all resign on Tuesday after the airline suspended it operations last month having amassed more than $1bn in debt.
This month has seen shares in the Chinese medicine giant, Kangmei Pharmaceutical, hit the buffers after it revealed it had overstated its cash position by some $4.4bn. Since then its shares have slumped.
Days later shares in Kangde Xin Composite Material started a similar decline when its auditor revealed it could find no sign of the
$1.8bn it claimed to have on deposit. The news has sparked anxiety as to how widespread such governance practices might be.
The China Securities Regulatory Commission (CSRC) announced an immediate investigation into five other listed companies including textile machine business ShangHai ZhongYiDa, Xinjiang Yilu Wanyuan, Zhejiang Great Southeast, a packaging giant, vaccine maker Changsheng and Chengdu Huaze Cobalt & Nickel.
Since last year’s £44bn merger between the maker of Ray-Bans, Luxottica, and the lenses specialist Essilor, to form EssilorLuxottica, a war has been raging between its French and Italian contingents.
The shares perked up slightly this week after the company announced an end to legal proceedings that had sprung up over who would lead the newly-merged group which also includes major brands like Oakley, Persol, Oliver Peoples and Varilux.
Tension arose in November when Leonardo Del Vecchio, the chairman of the new company appeared to favour Francesco Milleri, the Italian CEO of Luxottica. They escalated again in March. As part of the agreement, neither Milleri nor Vacherot, the respective Italian and French CEOs, will apply for the new role.
CJ Cowan, assistant portfolio manager, Quilter Investors.
Brexit boost: In the UK, GDP growth picked up to 0.5% in Q1 from just 0.2% in Q4 2018. Bloomberg estimates suggest stock building by companies ahead of the March Brexit deadline was the biggest contributor to growth. With Brexit on hold, the UK economy may deflate as stock piles run down.
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