Tariffs threaten to reignite inflation

As the ‘Trump bump’ has turned into a slump, investors are bracing for fresh volatility ahead. The impact of tariffs is front of mind, given broad 25% duties on imports of steel and aluminium have come into effect, with the risk of tit-for-tat retaliation high. China has already responded with higher duties on American goods and the EU is planning counter tariffs, which are expected to come into force in April. The disquiet evident among investors on Wall Street, spread to Asia, with the Nikkei flat and Chinese indices in the red. London’s FTSE 100 is set for a small rebound, buoyed by hopes for a ceasefire in Ukraine. ?The easing of geopolitical concerns will help improve sentiment to some extent, but investors will still be mulling the impact of tariffs on global growth and prospects for multinationals in an increasingly complex trading world. UK steel exporters are bracing for harsh winds to blow a storm through the industry, which has already been battered by higher energy costs, weaker demand, and over-supply on world markets.

?After fresh declines on Tuesday, Wall Street looks set to take a mini breather from the slide. Nerves will stay on edge, especially with the latest consumer price snapshot out later. Although the CPI headline rate is expected to moderate a little from 3% to 2.9% for February, prices pressures remain high. President Trump had vowed to immediately hose down inflation when he returned to the White House but his fiery trade policies instead risk reigniting prices. With 25% tariffs imposed on US importers of steel and aluminium, it’s set to push up costs for a raft of manufacturers, not least automakers and food producers. The high price of eggs is already a hot topic but increases in the costs of a can of coke or a tin or beans look set to be the next headline. There is only so much manufacturers can absorb, and car giants look set to be faced with the double whammy of higher costs and ultra cautious consumers, unwilling to splash out on big ticket items amid the uncertainty. Stagflation has reared its unwelcome head again, as stubborn inflation and a sharp slowdown in growth loom, and the twin worry of recession is not far behind. The Atlanta Fed is forecasting that US output will contract in the first quarter, by as much as 2.8%, although that is likely to moderate as more data comes through. Despite falling consumer confidence, troubled investors and frustrated chief executives, Trump is vowing to stay the course, which is likely to keep the economy on back foot into the second quarter, so the risks of recession are real.

?The ice-cold relations between the US and Ukraine have thawed and a 30-day ceasefire appears to be back on the cards. Talks in Saudi Arabia have now put the ball back in Russia’s court, with a deal to end hostilities on the table. This increases the potential that sanctions could be lifted on Moscow and more oil could flow from Russia. Oil prices have dropped back as expectations of higher supply are colliding with concerns about the Trump effect on global growth and energy demand which is expected to slow. A barrel of brent Crude has dropped below $70 a barrel, hovering near 6-month lows.

?Balfour Beatty’s results underline why CEO Leo Quinn will be such a hard act to follow. He has masterminded the company’s turnaround from a struggling firm to an industry leader focused on high margin contracts. Investors have clearly been concerned about whether the firm, under new CEO Philip Hoare can maintain momentum. These numbers show that he’ll be starting from a position of strength. Full year revenue came in at ￡10 billion, beating broker forecasts of ￡9.4 billion, and it’s hailed a high-quality order book providing not just robust short-term opportunities but significant medium to long-term potential. Investors are being rewarded by a 9% increase in the full year dividend and a ￡125 million share buyback programme. The company has also made it clear that Philip Hoare won’t be flying solo just yet, with Quinn set to stay in a strategic advisory role to help him bed in, which will provide some reassurance.

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