Tillerson firing threatens recovery in stocks

Stock markets were hit with a wave of selling Tuesday afternoon after US president Donald Trump caught traders off guard in announcing a new Secretary of State. Trump took to Twitter to make the changes public, declaring that Rex Tillerson would be replaced by CIA Director Mike Pompeo in a move that was both surprising and alarming even by the presidents’ elevated standards.

Nasdaq leads markets lower

After earlier hitting an all-time high the Nasdaq experienced it’s largest drop in over a fortnight with the shock development once more bringing political instability in the White House to the forefront of investors minds. The decision itself to remove Tillerson comes just a week after Trump’s chief economic advisor, Gary Cohn, resigned and serves as further proof that the President gives short shrift to those who hold different opinions to himself. Tillerson was seen as a moderating force throughout his tenure and it appears likely that Pompeo’s appointment will lead to a more hawkish foreign policy stance.

Oil markets wary of Iran deal

One area to watch closely going forward is the nuclear deal with Iran which Tillerson supported but Trump has openly criticised as “terrible”. Should the administration now adopt a stricter set of sanctions on Tehran, then their sizable oil production of around 4 million barrels per day may be hit, with Iranian exports increasing significantly once the previous sanctions were lifted. OPEC’s self-imposed curbing of output pushed the oil price to its highest in 3 years as recently as January but these reductions are far smaller in scale than the potential disruption that could lie ahead in Iran. A strict set of sanctions could therefore prove pretty bullish for the oil price and push it firmly back above the $70 a barrel level.

Miners rise on Chinese data

Some better than expected economic data from China has boosted mining shares in London this morning with Anglo American, Glencore and BHP Billiton all higher by more than 1% after figures showed that industrial production in the world’s second largest economy has hit its highest level since last summer. A y/y rise of 7.2% in February was the largest since last June and comfortably above the 6.2% increase forecast.

Prudential jumps on spin-off plans

More than £2.5B has been added to the market valuation of Prudential this morning, with shares in the insurer surging over 5% after it announced plans to spin off some of its operations after posting another year of bumper results. The UK’s biggest insurer will essentially look to split its UK business from its US and Asian operations in a move that has been a long time coming. The UK business has been something of a laggard compared to the impressive growth seen in the US and Asia and the separation of these entities is expected to allow the firm to allocate greater resources to its better-performing business units. Following the split, shareholders will be left with stakes in two companies - Prudential Plc and M&G Prudential, with the former focused on the Asian and US business and the latter on the UK. Whilst the performance of the miners and Prudential has lifted the FTSE by around 20 points on the day, it remains susceptible to deeper declines given the latest developments in Washington.