FTSE 100 falls again as Trump uncertainty weighs

The FTSE 100 started Tuesday’s session on the back foot despite a delay to Trump’s tariffs on Mexico and Canada.

The UK’s flagship index fell over 0.5% in early trade but recovered as the session progressed to trade down by 0.1% at the time of writing.

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Last-minute delays to tariffs on Canada and Mexico will be a minor relief for markets, but Trump’s actions over the past three days will leave traders wary of his unpredictability, which will ultimately weigh on risk assets.

Trump’s approach may just be viewed as unconventional negotiating tactics, but the disruption and fear they cause have the potential to be inflationary and cause long-term bitterness among close allies. 

The S&P 500 had rallied off the lows steadily during yesterday’s session. However, the news of retaliation by China resulted in a softening of futures in the European session. 

“There are more twists and turns to the tariff situation than a theme park rollercoaster,” said Russ Mould, investment director at AJ Bell. 

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“One minute we’ve got eleventh-hour deals to temporarily halt tariffs on Mexico and Canada, and the next we’ve got China flexing its muscles and showing it isn’t a pushover.

“China has hit back at tariffs imposed on its goods imported into the US by saying it would retaliate with its own tariffs. It’s like two cats screaming at each other in the street, tails puffed up and fangs on display.”

Yesterday, the FTSE 100 fell in a broad sell-off, impacting most companies. However, on Tuesday, there was more targeted selling of UK-listed companies directly impacted by the escalating trade war.

BP and Shell both dropped after China retaliated against Trump with a 10% tariff on US crude oil, which sent prices down and knocked the FTSE 100 oil majors.

Diageo was lower despite reporting reasonable half-year results. Organic net sales grew 1% in the half-year period, which will be welcome news to investors after a string of disappointing earnings releases.

The threat of tariffs was the major factor weighing on Diageo shares on Tuesday. Alcohol has become a leading battleground between the US, Canada and Mexico, threatening the sales of Diaego’s leading brands in the US, a major contributor to the group’s revenues.

“Diageo returned to growth in the first half of its fiscal year, with strong performances in Guinness and Tequila offsetting weakness in other spirits. This is a solid performance given industry headwinds,” said Charlie Huggins, Fund Manager at Wealth Club.

However, Trump’s 25% tariffs on Canadian and Mexican imports have the potential to stop this recovery in its tracks.

The US is Diageo’s largest market. To compound matters, the biggest impact of tariffs would be felt on Tequila, which is the fastest growing part of Diageo’s portfolio.”

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