FTSE struggles as trade war takes another step

European indices opened the day very cautiously, the FTSE trading just below the flat line, but the DAX and the CAC started powering higher in early trade, ignoring the escalation of the Sino-US tariff dispute.

Oil price drops as tariff dispute grows in volume

The US has confirmed that it will start imposing a 10% tariff – a reduction from the initially planned 25% - on certain Chinese goods from 24 September.

This second set of tariffs follows on an initial batch of $50 billion of goods from China but will include far more consumer and retail goods. China has already said it will retaliate, to which President Trump also threatened to impose duties on an additional $267 billion.

However, then what? If that happens, Trump will be out of ammunition because this would cover all Chinese imports into the US. It would also start affecting the price of popular consumer products from Apple and Fitbit including iPhones, a move highly unlikely to be popular with American consumers - and Apple shareholders.

Brent crude has been losing ground since the announcement, declining 0.60% for fears that the trade tensions will start affecting global demand.

Meanwhile at home …

Even the IMF felt compelled to comment on the state of Britain’s negotiations with the EU, warning late Monday that the UK’s economy will shrink if Britain fails to reach a Brexit deal in time.

IMF Managing Director Christine Lagarde said all likely Brexit scenarios will have costs for the UK economy and, to a lesser extent, the EU as well. The IMF now believes that the UK economy will grow 1.5% both this year and in 2019 lagging behind France and Germany.

Meanwhile back at home, the pro-Brexit camp has stepped up its Chuck Chequers campaign aimed at trying to force Prime Minister Theresa May to abandon her current Brexit proposals.

The campaign is another wedge between two highly-polarised sides within British politics: remainers asking for a second referendum and leavers asking for a more decisive separation from the EU and the abandonment of May’s proposals - which include free trade of goods with the EU and a common trade rulebook.

With such deep divisions there is no respite for the pound, which has weakened slightly both against the euro and the dollar, trading down 0.08% and 0.03%, respectively.

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