May 2018
Trade tensions and political instability unsettled European investors during May. Markets were dealt a blow by the news that US President Donald Trump had decided, after all, to impose tariffs of 25% on steel and 10% on aluminium imports from the EU, Canada and Mexico. The levies affect EU exports that totalled €6.4 billion in 2017.
- Economic growth in the eurozone slowed during the first quarter
- Italy finally managed to form a coalition government
- The Eurogroup met to discuss Greece’s bailout position
To view the series of market updates through May, click here
Trade tensions and political instability unsettled European investors during May. Markets were dealt a blow by the news that US President Donald Trump had decided, after all, to impose tariffs of 25% on steel and 10% on aluminium imports from the EU, Canada and Mexico. The levies affect EU exports that totalled €6.4 billion in 2017. European Commission President Jean-Claude Juncker criticised the move, commenting: “These unilateral US tariffs are unjustified and at odds with World Trade Organisation rules… this is protectionism, pure and simple”. Mr Juncker also warned that the US’s decision left the EU with “no choice but to proceed with a WTO dispute settlement case”.
“”This is protectionism, pure and simple” (Jean-Claude Juncker)”
Meanwhile, political turmoil in Italy undermined investors’ confidence, not only in Europe but around the world, as the country found itself unable to form a coalition government in the wake of March’s General Election. Share prices fell sharply during May until, at the very end of the month, Giuseppe Conte was announced as the new Prime Minister. Looking ahead, however, the future remains clouded amid persistent concerns remain over Italy’s fiscal position. The benchmark FTSE MIB Index fell by 9.2% over May as a whole, while the Dax Index dipped by 0.1% and the CAC 40 Index dropped by 2.2%.
Credit ratings agency Moody’s affirmed France’s “Aa2” credit rating and upgraded its outlook from “stable” to “positive”. Moody’s cited the French government’s “ambitious and wide-ranging reform programme”, its “commitment to fiscal consolidation”, and France’s large and wealthy economic base and strong institutions, but also highlighted the country’s high debt burden.
The eurozone’s economic growth slowed during the first quarter of 2018. The region’s economy expanded at a quarterly rate of 0.4% during the first three months of 2018, compared with a rate of 0.7% during the previous quarter. On an annualised basis, the eurozone grew at an annualised rate of 2.5%. Elsewhere, the region’s rate of inflation is expected to have risen from 1.2% year on year in April to 1.9% in May, bringing it closer to the European Central Bank’s target rate.
European institutions succeeded in reaching a “staff-level” agreement with Greece’s government on a package of reforms. The Eurogroup also discussed a package of debt-relief measures. The International Monetary Fund (IMF) continued to urge the issue of debt relief, warning that, although progress has been made, it is not yet sufficient.
A version of this and other market briefings are available to use in our newsletter builder feature. Click here
