Daily market update: new tariffs, TikTok, Pennon

There was a peculiar end to the week for financial markets as Asian indices were in the red while European indices moved higher, says Russ Mould, Investment Director at AJ Bell.

Asia was dragged down by weakness in pharmaceutical stocks as investors worried that numerous players would be caught up in a twist to Trump’s tariff regime.

There was also growing uncertainty around the pace of US rate cuts amid mixed signals from the Fed. Newly appointed Fed governor and Trump ally, Stephen Miran, is keen for big rate cuts in line with the president’s desire to slash the cost of borrowing. Others in the central bank seem to want to take the slow road for monetary policy easing. Investors like it when the direction of travel is crystal clear, not muddied as it currently is.

European shares enjoyed broad-based gains, with most sectors in demand apart from technology. It looks like investors have loaded up following the recent pullback, with financials among the sectors with the biggest price gains.

Steel stocks Thyssenkrupp and Salzgitter enjoyed a bounce amid reports that the European Commission will impose 25% to 50% tariffs on Chinese steel and related products. This goes to show the US might not be the only winner from tariffs – others are deploying the same strategy with foreign trading partners to protect domestic producers.

On the FTSE 100, InterContinental Hotels took the top risers’ spot after getting the much-sought-after double upgrade. JPMorgan has gone from ‘underweight’ to ‘overweight’ on the stock. Brokers typically move one notch up or down the ladder with upgrades or downgrades among the buy, hold and sell ratings or their equivalents. It is rare brokers do a complete about-turn and go from hating to loving a stock in a single swoop. Therefore, when it happens, investors sit up and take notice and that can drive a buying spree in a stock.

New tariffs

Just as businesses had got used to the new tariff regime, along comes another twist in the story with new levies on specific goods. This time, the pharmaceutical, transport and manufacturing industries are in the firing line as Trump unveils new measures aimed at protecting US companies.

Drug companies are exempt from the 100% tariffs on US imports if they are building a factory in the country. That means AstraZeneca and GSK are safe as they’ve both unveiled big investments in the US in what look like strategic moves to get on the right side of Trump.

Being exempt is a big win for these companies given previous uncertainty over how they might be affected by Trump’s repeated threats for tariffs on the pharmaceutical sector.

TikTok

A deal has emerged to keep TikTok’s app operational in the US but there are still of plenty of hurdles to clear before the issue is fully settled.

The need to separate the US arm of TikTok from its Chinese owner ByteDance is driven by concern over the security of users’ data and its potential as a propaganda tool for the Chinese state.

President Trump’s executive order effectively confirms the outlines of a plan with, as had been widely predicted, US firm Oracle leading the way as tech and security partner. The involvement of venture capital groups like Andreessen Horowitz and Silver Lake as well as prominent media and tech names like Michael Dell and Rupert Murdoch is not overly surprising, either.

A structure still needs to be agreed, and there are still questions about how the app will be made secure. China also still needs to sign off on the arrangement.

Warmer words between Washington and Beijing have helped dial down trade war fears from their peak earlier this year, but the TikTok debacle offers an example of just how complex it could be for the two countries to carve out sustainable agreements on trade and other matters.

Pennon

Cleaning up the water utility sector’s reputation would probably take more H2O than can be found in Rutland Water, the UK’s largest reservoir, but the latest results from South West Water owner Pennon demonstrate some signs of progress.

Managing to halve pollution and storm overflow spills year-on-year is impressive but also speaks to how acute these problems have been in the past. It is notable that Pennon still has legacy issues to address over wastewater incidents and last year’s water parasite outbreak in Devon.

From a shareholder perspective, the return to profitability is welcome and a decent achievement given the pressures from the hot weather over the summer. The looming retirement of chief executive Susan Davy means the company has a succession issue to tackle and investors will be hoping for an update on this process when Pennon announces its first-half results in November.

Pennon has raised more money to boost the balance sheet, an important consideration given the financial problems endured by the industry. It is also making investments in renewable power projects which will help meet the company’s energy needs.