The European Union has introduced tariffs on $3.2 billion (£2.4 billion) worth of US goods. The tariffs came into force on Friday and are viewed to be in retaliation for the imported steel and aluminium tariffs that were imposed by the Trump administration earlier this month. The 25 percent tariff will be placed on US products such as whiskey, tobacco, Harley Davidson motorcycles (NYSE: HOG) and peanut butter. A 50 percent tariff has been placed on footwear, certain clothing, and washing machines. On Thursday, European Commission president Jean-Claude Juncker said to the Irish Parliament that the US imposed tariffs went “against all logic and history.” “Our response must be clear but measured,” he added. “We will do what we have to do to rebalance and safeguard” the EU. The tariffs enforced by the EU affect mainly goods produced in Republican states in order to affect the President’s party in the run-up to the November midterm elections. The US tariffs on steel and aluminium not only affect the EU but also Canada, Mexico, India and other allies. Canada announced plans to impose retaliatory tariffs on C$16.6 billion (£9.5 billion) worth of US exports from 1 July. Two weeks ago, Mexico put tariffs on $3 billion worth of American products. Speaking on Thursday, Trump told a crowd in Duluth, Minn: “You look at the European Union, they put up barriers so that we can’t sell our farm products in. And yet they sell Mercedes (ETR: DAI) and BMW (ETR: BMW), and the cars come in by the millions. And we hardly tax them at all.” A CNN poll showed that people in the US would rather maintain a good relationship with ally countries than impose tariffs on foreign goods. One-quarter of the poll’s respondents said they would prioritise high tariffs over strong relationships with trade partners.      

Greece reached a hard-fought debt relief deal with Eurozone nations, after talks that continued into the early hours of Friday morning. The deal gives Greece more time to repay its €96.9 billion worth of loans, which were agreed after the country’s debt situation spiralled out of control. The period for repaying the loans has been extended, with Greece paying little or no interest. The finance ministers of 19 Eurozone nations met on Thursday night to discuss the final stages of Greece’s eight-year bailout program, and the agreed deal has been hailed as “historic”. EU Economic Affairs Commissioner Pierre Moscovici said it would be the end of Greece’s debt crisis. Greece faced serious financial difficulties back in 2010, when an initial plan to manage its budget deficit was agreed. Greece’s economy has since stabilised, but its debt still stands at around 180 percent of GDP. Greek prime minister Alexis Tsipras has been pushing hard for austerity measures, sending wages down by nearly 20 percent over the period and welfare payments cut by 70 percent. Finance Minister Euclid Tsakaloto said, “I think Greece is turning a page.” “I think that it has all the building blocks there to leave the programme with confidence that we can access the markets, that we can implement our growth strategy and turn the agenda away from one of fiscal adjustment, which has been completed, to one of growth. “So I think it is a historic moment as people have said, a momentous moment.”

The markets got off to a good start on Friday morning, with the FTSE 100 trading up 0.4 percent higher in early trading. The FTSE 250 is also trading up, with the positive sentiment spreading across Europe. The DAX is soaring, up 2.54 percent, with Spain’s IBEX 35 up 0.35 percent and the CAC40 up 0.40 percent According to Fiona Cincotta, Senior Market Analyst at City, European markets have been defying the trend set by US stocks. “Concerns over the fallout of the US-China trade war have seen the Dow Jones Industrial Average close down for eight consecutive sessions while the Nasdaq sank 0.9 percent on Thursday, the biggest single-day fall since April. “The pound is 0.42 percent stronger against the dollar building on a 1% increase late Thursday as the Bank of England voted to keep rates unchanged. Although the rate decision was not a surprise the unexpected hawkish vote ended up giving sterling a boost.” The FTSE is being aided by rising oil shares. BP (LON:BP) and Shell are up 0.3 percent, reflecting higher prices for crude oil. Iran is looking set to scupper Opec’s oil agreement, having said it was unlikely to agree to boost oil production with the group. Saudi Arabia and non-Opec Russia want to raise production by 1 million barrels per day after calls from the US, China and India to lower the price of crude oil. However, US sanctions on Iran could push down their output.

The FTSE 100 continued it’s fall on Thursday as the Bank of England held interest rates at 0.5% but moved closer to a rate hike. The Bank of Englands chief economist Andy Haldane changed his stance and voted for a hike in rates, meaning the MPC were split 6-3, increasing the chance of a rate hike at the next meeting set for 2nd August. The minutes released alongside the interest rate decision pointed to the softness in the UK economy experienced in the fast half of this year being reversed, providing justification for members of the MPC to seek interest rates later in the year. “As widely anticipated, the Bank of England Monetary Policy Committee has kept interest rates on ice at 0.5%. With recent data showing UK CPI at 2.4% – above target but below recent highs – and wage growth also being pegged back, there was no chance of a shock rise this week. “The Bank of England does, however, appear to be standing firm on its desire to hike rates in August, even in the wake of recent weaker than expected economic data. After abandoning its widely signalled rate hike in May, Mark Carney is determined to shake off the moniker of the ‘unreliable boyfriend’ if he can,”said Ed Monk, associate director for Personal Investing at Fidelity International.

FTSE 100 sinks

The announcement drove a sharp decline in the FTSE 100 as sterling rallied strongly against the dollar. Some of the biggest fallers in the FTSE 100 were again the house builders who were still reeling from a trading update from Berkeley Group suggesting the housing market was set for a lull which could see thier profits fall – something unlikely to be helped by rising rates. Taylor Wimpey (LON:TW), Persimmon (LON:PSN), Barratt Developments (LON:BDEV) and Berkeley Group (LON:BKG) were down between 2.9% and 3.7% on Thursday. The BoE also commented on asset purchase balance sheet saying rates were likely to be increased significantly before there was any consideration of reducing the balance sheet. Some analysts questioned the substance of the today’s balance sheet comments from the Bank of England suggesting any meaningful action was still some way.

Today’s plans to bring in an unwind of QE from years and years away to merely years away could be seen as bid to remind investors that sterling can rise as well as fall.

— WorldFirst (@World_First) 21 June 2018