Motoring ahead with tariffs

The expectation that Donald Trump would announce a 25% tariff on auto imports, which he duly delivered, weighed on equity markets yesterday, while the dollar rose to highs of circa $1.0730 and $1.2870  against the euro and sterling respectively though it has since eased back to around $1.0760 and $1.29. The euro continues to drift down against the pound, trading at £0.8335 this morning, the lower end of the range of about £0.8240 to £0.8475 that has prevailed since the start of the year.

In equity markets, the S&P 500 in the US shed around 1% while European stocks lost a bit more than 1%, with the latter down another 1% at the open this morning. In government bond markets, UK yields ended marginally lower on the back of softer than expected inflation data, with the Chancellor’s Spring Statement having little impact, while US yields were marginally higher on the day. German yields, which finished broadly flat yesterday, are lower at the start of play today.

In addition to the announcement of 25% tariffs on autos (effective 3 April) and auto parts (effective no later than 3 May), Donald Trump also said “we’ll be doing tariffs on pharmaceuticals in order to bring our industry back” (to the US). Meanwhile, ahead of the expected announcement of reciprocal tariffs next Wednesday, the Financial Times reports that the “assessment” of the EU’s trade commissioner (following talks in Washington) is that tariffs of about 20% will be imposed on the EU.

The OBR has halved its forecast for GDP growth in the UK this year, to 1% from 2%, citing “a more challenging and uncertain (economic) outlook.” It also projected that absent the corrective action (mainly spending cuts) announced in her Spring Statement, the Chancellor would have breached her fiscal rule that the current budget should be in balance or surplus in 2029-30. A surplus of £9.9bn (0.3% of GDP) is now projected for 2029-30, the same as in October, though as the OBR notes, this “headroom” remains “a small margin against the risk of further shocks to interest rates, productivity, or global trade.”

For the day ahead, economic data scheduled include money supply & credit growth in the Euro area – the ECB is closely watching the latter to see how lower interest rates are transmitting to lending in the economy – and jobless claims and a final estimate of Q4 2024 GDP in the US.

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