Market Round-Up

The European Union’s trade deficit with China has fallen to the lowest quarterly level since 2021. This is in spite of growing concerns about an inflow of cheap Chinese subsidised goods, such as electric vehicles (EVs), flooding the market. Indeed, the EU-China deficit fell to €62.5bn in Q1 2024, down from a peak of €107.3bn in Q3 2022, mainly due to weaker import demand within the EU. Despite this, Chinese EV sales to Europe have bucked this trend, rising tenfold to US$11.5bn last year.

It is this rising EV and cleantech competition which has partly motivated the United States to impose harsher tariffs on Chinese exports, with Janet Yellen, the US Treasury secretary, urging the EU to follow suit, in order to protect domestic industries. However, the EU is reportedly less keen to implement such blanket tariffs. Incidentally, the European Union also registered its largest trade surplus with the US last quarter, a record €43.6bn. Strong demand in the States and tariff headwinds for Chinese manufacturers were the main reasons behind this.

The Office for National Statistics (ONS) has published April’s inflation figures with headline inflation, the annual increase in the consumer price index, standing at 2.3%. In positive news for the economy, this was the lowest reading since mid-2021, but the figure was still higher than the 2.1% forecast by economists and the Bank of England (BoE).

The BoE hoped that a 12% cut in the energy price cap would bring inflation marginally above its 2% target. However, strong wage growth and the willingness of companies to pass on more costs to their customers, has resulted in inflation remaining more stubborn than anticipated. This is particularly prevalent in the labour-intensive service sector, which recorded price growth of 5.9% in April, contributing to the higher headline figure.

Prior to the ONS release, BoE Governor Andrew Bailey fuelled speculation of an interest rate fall to come in June. Thus, traders originally estimated the probability of a June cut to be around 50%. Post release, this fell to 15% as the data appears less favourable than the BoE originally predicted. Two-year gilt yields rose 0.13% on the day, to 4.43%, reaffirming that the market now expects the first rate cut, from the current 5.25% level, later in the year.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the investments mentioned. Investments and income arising from them can fall as well as rise in value. The information and views were correct at time of publication but may have changed at point of reading.