UK eyes ‘major trade deal’

What matters in U.S. and global markets today

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

The spotlight hit Britain on Thursday as U.S. President Donald Trump’s ‘major trade deal’ announcement looks set to provide a major relief for UK exporters, just as the Bank of England is set to cut interest rates.

I’ll get into all the market news below, and, for today’s deep dive, I’ll explain why Europe may be better prepared to absorb a deluge of global investment flows than many assume.

Today’s Market Minute

* The Federal Reserve held interest rates steady on Wednesday but said the risks of higher inflation and unemployment had risen, further clouding the U.S. economic outlook.

* Trump is expected to announce a trade deal between the United States and Britain on Thursday, the New York Times reported on Wednesday.

* Ukraine is starting to consider a shift away from the U.S. dollar, possibly linking its currency more closely to the euro amid the splintering of global trade and its growing ties to Europe, Central Bank Governor Andriy Pyshnyi told Reuters.

* Sentiment in the oil market has soured in recent weeks, but looking at current conditions on the ground - and refiners’ profit margins - one would be forgiven for thinking that the oil market is doing extremely well. What gives? Reuters’ columnist Ron Bousso explores this discrepancy.

* Concern is mounting over just how big a hit the Chinese economy is going to take from the trade war with the United States, but so far the commodity most at risk - iron ore - is seemingly unaffected. Reuters’ columnist Clyde Russell explains why in his latest piece.

UK eyes ‘major trade deal’

A British official said the U.S. and UK were working to agree on lower tariffs for steel and autos, two sectors that have been hit by 25% U.S. levies. In return, Britain is likely to agree to lower its own tariffs on U.S. cars and cut a digital sales tax that affects U.S. tech groups.

The status of a 10% “baseline” tariff imposed by Trump on most countries including Britain remained unclear.

Awaiting a widely-expected quarter point UK rate cut later today, sterling appeared to shrug off the anticipated trade announcement. But the FTSE 250 index of domestically facing mid-cap stocks rose almost 1% on the news to its highest point since late February.

Meanwhile, the Federal Reserve chose not to change interest rates on Wednesday, a decision that was widely expected. The U.S. central bank flagged the high level of uncertainty ahead, arguing that it made it challenging to make any confident changes to policy or guidance.

Embattled Fed Chair Jerome Powell highlighted the risk that trade upheaval could lift both unemployment and inflation, creating tensions in the Fed’s dual mandate on jobs and price stability.

“I don’t think we can say which way this will shake out,” Powell said.

But Wall Street stocks ended higher nonetheless, emboldened by hopes that the week ahead will see at least some easing of planned U.S. tariffs amid expected deals with Britain and others as well as weekend talks in Switzerland with China.

U.S. stock futures extended those gains overnight along with a broad advance in European and Asian bourses.

Although the first-quarter U.S. earnings season has been sideswiped by suspended outlooks and foggy guidance due to the looming tariffs, estimated annual profit growth for S&P 500 companies during the first three months is running at 14% - almost twice what it was on April 1 and above the 12% forecast for the first quarter made at the start of the year.