Investors hope for talks to resolve trade dispute, while new figures on UK housing show better than expected performance in March
European markets are managing to hold on to their gains, but the continuing trade tensions between the US and China mean this positivity could prove fleeting, says Joshua Mahony, market analyst at IG:
European markets are in a more optimistic mood today, with the focus shifting towards a more constructive end to the US-China stand-off. However, recent weeks have shown us that volatility is likely to remain a key part of the trading landscape, with daily shifts in tone from US and China driving huge swings in stocks of late.
A relative dearth of major economic releases over the first two days of this week provides greater emphasis on the geopolitical factors that have shaped market sentiment over recent weeks, with North Korea and particularly China likely to remain key going forward. Donald Trump clearly believes that a crisis will be averted by a deal which would allow free trade between the countries and compromise over intellectual property; however the risk of failure to find a resolution is very real for the global economic picture. The fear is that we have two stubborn and headstrong leaders who are unlikely to cave in, with the stand-off growing increasingly fraught as time passes.
Back with the UK house price figures, and here is our report by Julia Kollewe:
House prices strengthened in March to post their biggest monthly gain since August, according to Halifax, the UK’s biggest mortgage lender.
The average price of a UK home rose 1.5% in March to hit £227,871, the highest recorded price. Prices in the three months to March were 2.7% higher than a year earlier, up from the 1.8% annual growth recorded in February.
After February’s freeze, the March thaw brought some relief to the property market – but only just.
The month-on-month jump in average prices shouldn’t be taken as a sudden blooming of pent-up demand.
For a month in which persistent snow kept cars on drives, this is an enormous rebound, albeit that stock shortage is playing a major role in average monthly price volatility.
We actually saw quite a few opportunistic sellers taking advantage of the bad weather last month to steal a march on the competition and market while there were fewer properties being listed.
The report released by the Halifax this morning suggests that the UK housing market is ticking over steadily, with house price growth mainly unchanged on the previous quarter. The month on month increase of 1.5% now suggests an all-time high in terms of average house price, and overall the data would seem to indicate that the market is so far performing to expectations this year, including the annual forecast released by the Halifax for 2018 at the end of last year.
In many respects, a report suggesting that house price growth is mainly unchanged represents a ‘no news is good news’ result for the property market, as given the current challenges of low available stock levels, impending interest rate increases and ongoing Brexit uncertainty, the fact that both activity and values seem to be maintaining a stable trajectory does underline the strength of consumer confidence in bricks and mortar. The fact that prices aren’t increasing at a steeper rate does mean that, hopefully, more First Time Buyers will be able to take advantage of both the raft of competitively priced mortgages which are still available, together with the exemption on Stamp Duty and Land Tax and get onto the housing ladder in the coming months. Elsewhere in the market, for those wanting to trade up to a larger property, the current trend of more sustainable price increases together with better mortgage affordability will, hopefully, enable those who want to move home this year with the right environment to do so.
Here’s a bit of gloom from the eurozone.
Consumer sentiment fell in April for the third month in a row, due to concerns about a possible trade war between the US and China and a slowdown in global growth.
Even though the current situation is still rated as excellent…the prospects for the future have become massively gloomier. The customs disputes, fuelled by US president Donald Trump, are leaving their traces.
Elsewhere in the FCA’s annual business plan, the watchdog says it’s going to be looking closely at high-cost credit this year. Rent-to-own, home credit, catalogue credit and debt management advice is falling into its crosshairs.
The FCA’s renewed focus on high-cost credit comes at a time of booming growth in wider consumer credit, back to levels unseen since the financial crisis. And as interest rates rise. It warns even gradually rising rates could hurt those in high levels of debt.
The City watchdog has outlined plans to significantly increase its spending on Brexit to help smooth the process for financial firms, one of the biggest sectors of the economy that could face disruption.
The Financial Conduct Authority will need about £30m for making changes to the way it governs the work of banks, insurers and asset managers in the City of London, according to its annual business plan published on Monday.
Over in Germany, there has been a boardroom shake-up at the country’s biggest bank. Julia Kollewe reports:
Deutsche Bank, Germany’s biggest lender, has ousted its British chief executive, John Cryan, after years of losses and promoted the co-head of its retail banking arm to the top job.
Following a two-week boardroom battle, Deutsche has appointed Christian Sewing as chief executive with immediate effect. He vowed to take “tough decisions” to return the bank to profitability.
Deutsche Bank shares jump 4% in early trade after sacking CEO John Cryan and replacing him with Christian Sewing. pic.twitter.com/jZR2LxjAPh
Here are the recent movements in house prices according to the Halifax:
House prices in the UK rose by 1.5% in March compared to the previous month, according to the Halifax. This was a better than expected result, with analysts forecasting growth of just 0.2%.
This was the fasted increase since August last year, but the Halifax does point out the monthly figures can be volatile. House prices rose by 2.7% in the first three months of the year compared to the same period last year, up from the 1.8% annual growth reported in February.
House prices in the three months to March were largely unchanged compared with the previous quarter. The annual rate of growth continues to be in a narrow range of under 3%; though the average price of £227,871 is a new high.
Activity levels, like house price growth, have softened compared with a year ago. Mortgage approvals are down compared to 12 months ago, whilst home sales have remained flat in the early months of the year. This lack of direction in the housing market is in stark contrast to the continuing strength of the UK jobs market. The unemployment rate is now the joint lowest since 1975 and in the three months to January there were 402,000 more people in work compared to a year earlier.
Investors are also looking to a speech from China’s president Xi on Tuesday, where he is expected to comment on the current trade situation with the US. Let’s hope he also expands on his “friendship” with Donald Trump (as referenced by the US president over the weekend.)
Markets are looking relatively steady ahead of a keynote speech on Tuesday by China’s President Xi. Trade tariffs are expected to be commented on. Oil edges higher whilst dollar is steady, and cryptos see a small rally. t.co/cse8TggseU
As expected, European markets have made a steady start to the week on hopes that the trade dispute between the US and China can be resolved before the threatened tariffs kick in.
The FTSE 100 is currently up 0.22% , while Europe’s Stoxx 600 index opened up 0.3%. Germany’s Dax has added 0.5% and France’s Cac has climbed 0.2%.
Wall Street is expected to follow the generally positive mood when US markets open later, with the Dow Jones Industrial Average predicted to rebound by more than 200 points. This would not recover the 572 point drop seen on Friday, but US markets have been so volatile in recent days that it would be no surprise to see the Dow do that during the day.
Earlier there was some weaker than expected trade data from Germany, with imports and exports both down. It is the weakest start to a new year since 2009, says economist Carsten Brzeski at ING Bank, at a time when Trump’s tariff plans could hit the country’s economy:
The latest trade data confirm that the German economy has had a weak start to the new year. Both exports and imports took an unexpected hit in February. Exports dropped by 3.2% month on month (from -0.4% in January), while imports decreased by 1.3% month on month, (from -0.4%). The trade surplus widened somewhat, from 17.3bn euro in January to 18.4bn euro in February.
These days, talking about trade means talking about Trump and tariffs. In Germany, these talks have caused quite some goose bumps. Rightly so. In 2017, the US was Germany’s largest export partner. The bilateral trade surplus amounted to more than 50bn euro, with vehicles and machinery recording the largest bilateral surplus. At the same time, Germany runs a significant trade deficit with the US in agricultural products. The only comforting factor for Germany is that it has a very diversified export sector, particularly in terms of geographic diversification.
Still, even though the current stage of the global trade conflict seems to be limited to China and the US, Germany could become the first prominent victim outside of these two countries. China announced to impose a 25% import tariff on cars produced in the US. This would immediately harm Germany as the single largest car exporting company in the US is in fact a German car manufacturer.
While the prospects for the German export machinery have deteriorated significantly in recent weeks, the present state of the economy gives some reasons for concern. In fact, the entire start to the year 2018 has been a disappointment. Sentiment indicators have started to weaken, albeit from record highs, and industrial data for the first two months showed the weakest performance since 2009. In our view, seasonal effects, the cold winter weather and a flu epidemic were probably the main drivers of this disappointment. At least in the near term, sound fundamentals, low interest rates, record high employment, high capacity utilisation, low inventories and filled order books are strong arguments in favour of a re-acceleration of the economy. However, if anything downside risks for the economy have clearly increased in recent weeks.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!
Steep declines on Wall Street have been shrugged off in Asian markets overnight and European shares look set for a positive open. US shares had initially held up relatively after President Donald Trump threatened another $100bn in tariffs against China. Few were willing to hold on over the weekend after US Treasury Secretary Steven Mnuchin acknowledged the possibility of a trade war. Trump tweeted over the weekend with respect to China that ‘Taxes will become reciprocal & a deal will be made on intellectual property.’ Trump’s softened stance offers some hope for calm in his trade dispute with China.
With US earnings season starting this week some decent reports could be the difference between a rebound off these [market] lows, and optimism about future profits or worries as to whether we’ve seen the high water mark for profits growth. Investors will have to look past recent tax changes, as well as market volatility and flatter yield curves to determine what effects these might have on long term profitability.
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