Why Chinese shares and miners are rising on trade war update, and International Consolidated Airlines flies higher

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“One may not have expected the Chinese market and shares in mining companies to rise off the back of US increasing tariffs on $200bn of Chinese goods, but that’s exactly what has happened," says Russ Mould, Investment Director at AJ Bell.

“There are two possible explanations for the stock market reaction.

“First, investors hate uncertainty as it leads to speculation about what might and might not happen. Once you have the real facts, investors can properly assess the situation and be more comfortable about the impact on various companies and industry sectors.

“Second, China is expected to retaliate which is likely to see increased or new tariffs on more US goods. Ultimately this will hurt US businesses and consumers and have a negative impact on the economy. The finger of blame would immediately point to Donald Trump for being too aggressive, which is something he cannot afford to happen if he wants a good chance of being re-elected as US President.

“Investors could be betting that China’s retaliation could force Trump to back down and come to an amicable conclusion.

“Another suggestion is that the Chinese government has ordered representatives – often called the ‘national team’ – to buy shares in the market and restore some sense of normality.

“London-listed mining shares are likely to be moving higher as investors take a cue from strength in Chinese equities and assume Asian commodities demand will not be derailed by the trade war.

“The benchmark CSI 300 index in China jumped 3.6% on Friday and Shanghai’s SSE Composite index advanced 3.1%.

“In London, miners BHP, Anglo American, Rio Tinto and Glencore all moved 1% to 1.5% higher,”

International Consolidated Airlines

“A lot of the bad stuff in today’s update from British Airways-owner International Consolidated Airlines would have been widely expected by the market.

“This explains why the shares have taken off despite a big year-on-year fall in first quarter profit.

“In an industry where staying the right side of the profit and loss line can be fraught with challenge, the fact IAG has reported a profit at all is notable and indeed chief executive Willie Walsh does make note of this in his accompanying remarks.

“The main contributors to the fall in profit are a big foreign exchange headwind and rising fuel costs amid a year-to-date spike in oil prices.

“These factors are unlikely to be limited to IAG and will also impact its rivals, however the scale of their impact on the business is a reminder of just how little pricing power airlines have in an industry with cut-throat competition.’

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