Dispute between Trump and China takes another step in the wrong direction

The FTSE and other European indexes declined on opening, getting caught in the crossfire between President Donald Trump and China as the two countries' trade dispute took two more steps in the wrong direction overnight.

China’s swift response to Trump’s latest threat rattles equities

The list of who threatened what is getting long, the latest from Trump is a threat to introduce tariffs on $150 billion worth of Chine products in addition to a list of products already earmarked for tariffs. China’s response was quick this time – the country is now looking at more tariffs on US products. With both sides seemingly determined to retaliate it is hard to see how this will end without a bloodshed for business, particularly US businesses. The Federal Reserve's officials have already warned that Trump’s tariffs are scaring companies from making new investments. Ironically, though the two countries had made some progress during trade talks earlier this year when China agreed to reduce the trade imbalance with the US, the deal ended up null and void after Trump resumed his threats almost as soon as the Chinese delegation left Washington.

The sabre-rattling affected all of the markets: the Dow Jones Industrial Average and the Nasdaq dropped 1.3% and 1.2%, respectively, and Asian markets didn’t fare any better, sliding to a four-month low.

May’s defeat keeps pound under pressure

The dollar was one of the few assets benefiting from the Sino-US tensions and rose against a basket of currencies. The pound, however, was bogged down by domestic problems and declined below $1.32 for the first time since November. Teresa May continues to struggle to get any Brexit-related decision approved by the Parliament and a vote by the Lords is about to make her life even more difficult because it will require that the Commons approve any Brexit deal reached between the government and Brussels.

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