Trump gives the green light for more tariffs

After a stellar day of gains yesterday, the FTSE has seen some pretty strong selling and the chance of a breakaway rally higher have certainly dropped. The US is expected today to announce a further $50b worth of import tariffs on China in an additional step that brings the world’s two largest economies closer to a trade war and Beijing have wasted little time in vowing to respond with reciprocal measures.

Downside risks remain

Thursday saw a wave of positive sentiment from the continent after the ECB announced a dovish taper of their Asset Purchase Programme which saw European equities rally strongly. However, there was a lack of follow through to the upside in the second part of the US session and in Asia and there remains several hurdles ahead for stock market bulls. Throw into the mix the latest US-China trade tensions and the outlook becomes less favourable and it could well be telling to see how stocks trade into the weekend with a failure to build on yesterday’s gains possibly paving the way for a pullback ahead. A resurgent buck could also spell trouble for emerging markets and possibly sour risk sentiment for developed ones too with an EM weighted-currency index hitting its lowest level of 2018 this morning.  

Rolls Royce shares jump after announcing job cuts

The standout performer in London this morning is Rolls Royce with shares jumping more than 10% after the firm delivered an upbeat assessment on its future prospects. The aero-engine maker told investors that it is set to exceed its target of £1b in free cash flow by the end of the decade and believes it will nearly double that in the medium term. The news will come as a bitter pill to swallow for the 4,600 back office and mid-management staff that will lose their jobs as part of a £400m a year cost-cutting package announced just yesterday. The firm is also looking to increase its return on invested capital from 9% to 15% - a 60% jump. The market is clearly impressed by these bullish forecasts and the stock has moved to its highest level in over a year in response, and although there is a case to be made that these projections are overly ambitious, the initial reaction has clearly been very positive.  

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