Major equity markets are trading higher today following broad gains in Asia, as the US eased some of the restrictions it imposed last week on Huawei, the Chinese technology company that Western countries are increasingly viewing as a threat to national security. Washington will now allow Huawei to buy American goods in order to support existing, but not new, networks and handsets.
 

Last week, a deterioration in US-China trade talks sparked volatility which started with the S&P 500’s worst one-day fall this year. US stocks only partially recovered amid more verbal sparring, with both sides claiming they are willing to persist with tariffs and counter-tariffs despite the damaging effects on the global economy.
 

China’s own economy showed signs of weakness last week. The annual growth of industrial production in April fell from 8.5% to 5.4% and retail sales hit a 16-year low at 7.2% year-on-year. Both readings were below consensus and mark a shift in momentum after government stimulus supercharged the economy in the first quarter.
 
The risk-off attitude helped US Treasuries rally, while the dollar index rose 0.8% last week and is closing in on a two-year high. American industrial production, however, fell 0.5% between March and April.
 
Sterling fell 2.2% against the dollar last week as dollar strength was compounded by a breakdown in Brexit compromise talks between the Conservative and Labour parties. Ahead of the vote on Theresa May’s Brexit deal next month, the latest reports suggest the Prime Minister is prepared to offer more concessions to Labour, but potential successors have upped their efforts in anticipation of May’s agreement failing again. Boris Johnson is currently the clear favourite.
 
Elsewhere, Japan’s unexpected jump in first quarter economic growth is likely to confirm the planned increase in consumption tax that is due in October. GDP rose at an annualised 2.1% in the first three months of the year, while consumption tax is due to rise from 8% to 10%.

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