Trade deal optimism lifted the FTSE along with other European bourses on Friday, even after Trump’s trade tariff increases came into effect and China vowed to retaliate. Whilst stocks in Europe rebounded, snapping a four-day losing streak, traders on Wall Street saw the glass half empty sending stocks lower for a fifth consecutive session.
The markets have been relaxed about the trade war over the last few months. The S&P 500 and the Nasdaq hit record highs within the last month, in part owing to the assumption that a US – Chinese trade deal was just around the corner. Over the past few days, serious cracks have appeared in that theory. Traders are pricing in the increasingly real possibility that the trade dispute will become a long-term risk factor with a potentially severe impact on global growth.
Whilst we are not seeing investors sell out of US stocks with the same vigor, as earlier in the week, investors are clearly nervous as to how these tariffs will impact on the US economy. The bottom line is that traders believe that the US – Sino trade dispute will eventually end in a deal, but not before both sides feel some economic pain.
Even though the US – Sino trade dispute is occupying centre stage on Friday, US inflation data still managed to grab trader’s attention, but for all the wrong reasons. CPI data showed that inflation in the US increased 0.3% month on month in April, down from 0.4% in March and missing expectations of 0.4%. The dollar extended losses even though inflation on an annual basis ticked higher to the Fed’s target level of 2%, it was also short of forecasts.
Today’s CPI combined with yesterday’s slightly weak PPI figures will not encourage the Fed to take its finger off the pause button.
UK GDP
Sterling took advantage of the weaker dollar moving northwards after investors had barely reacted to earlier UK GDP data. There were no real surprises from the GDP print, with Q1 growth at 1.8% yoy as forecast.
Pound traders initially shrugged off the “as expected” data only pushing higher after the weaker US data. Whilst the headline figure suggests that the UK economy is showing resilience amid lingering Brexit uncertainties, the reality is not quite so rosy. The UK economy performed OK in the first quarter, however than was mainly thanks to stockpiling ahead of the March Brexit deadline. The production and stockpiling of unsold goods is obviously as a way of boosting economic growth is nor sustainable or commendable.
Uber (NYSE:UBER) IPO
Given the market turmoil, today is not the ideal day to go public with any company, let alone one that is has a very questionable road to profitability. Still, investors are waiting patiently for the trading of UBER shares on the New York Stock Exchange. Shares are expected to be priced at $45. This is the lower end of the $44-50 price bracket and would value to company at $75.5 billion. Whilst this still puts UBER top of the list for highest valuation IPO’s over the last 5 years, it is significantly short of the $120 billion that had been touted earlier this month.
Given that UBER is expected to price at the lower end of the valuation, spectators will be watching carefully to see whether the share price tanks in a similar fashion to LYFT (NASDAQ:LYFT) over the coming weeks.
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