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April 10, 2018

Pegler’s market report – 10.04.18: Trump keeps upping the ante with China


in Insights Press Releases

As published in the Brighton Argus (10.04.18) Business section under the title Pegler’s Market Report:

Trump keeps upping the ante with China

Donald Trump continues to increase the ante in his very public high stakes poker game with China. China said it would impose 25% tariffs on 106 US goods including soybeans, orange juice and aircraft as a response to the US intention to impose tariffs on 1,300 Chinese products, also at 25%. Tensions had appeared to ease a little earlier last week until President Trump reacted to China’s retaliatory tariffs in aggressive fashion, asking his administration to find an extra $100billion of tariffs on Chinese imports. The move provoked a response from China in which it said it did not want a trade war but would not back down from fighting one.

A mixed US jobs report has done little to lift the sour mood on markets but stocks across the Atlantic have rallied off lower levels.

As we all know, the market hates uncertainty and between this trade war issue and Donald’s tweets, sentiment has been pretty awful of late. The market’s ability to keep bouncing off current lows perhaps tells you that optimism isn’t dead and that the sun will (hopefully) shine again. Elsewhere market technicians were still concerned with low-volatility and crowded positioning especially in sectors such as technology. However, on the upside, the Q1 earnings optimism appears to be positive and none of these tariffs have even been implemented, at least yet.

Back on home soil, several private equity firms are understood to be circling Homebase as the DIY chain’s Australian owner Wesfarmers plots an escape from its ill-fated £340m takeover. Hilco, Endless and Lion Capital are among the groups eyeing a potential bid, with bargain retailer B&M also weighing an approach, sources said. It is unclear at this stage whether any bid would be for the entirety of the business, part of it, or, in B&M’s case, a chunk of Homebase’s store estate.

The Co-operative Group returned to profit last year as it bounced back from a massive writedown of its stake in the Co-operative Bank and cost-cutting measures began to pay off. The mutual, which runs food shops and funeral parlours as well as offering insurance and legal services, made a pre-tax profit of £72m in the year to January, up from a £132m loss the year before. Its food revenues were flat at £7bn but rose 3.4pc on a like-for-like basis, stripping out the impact of its decision to close larger stores.

New data suggests the UK construction sector is still contracting, although heavy snow and freezing weather were blamed for much of the fall. Meanwhile Britain’s manufacturing sector maintained its recent upwards momentum in March with higher output, albeit with a slowing rate of growth in new orders.

This week, we have results from Tesco and WH Smith. Economists are keeping a close eye on US inflation as they attempt to forecast when interest rates will rise.

By David Pegler, Brighton Capital Management

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