Please see below, Brooks Macdonald’s Daily Investment Bulletin which summarises the key factors currently affecting global investment markets. Received today – 13/05/2025
What has happened
Yesterday saw a massive rise in US equities, but other equity markets rose too, as news landed that US and China had agreed to a temporary climb-down in trade tariffs. US equity markets (which had previously seen some of the biggest daily falls following US President Trump’s 2 April tariff ‘Liberation Day’), rocketed higher. The US S&P500 equity index was up +3.26%, its third best day in the last five years, as megacap tech led with the ‘Magnificent Seven’ group (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla), up +5.67%. In contrast, the gains across other equity markets yesterday were smaller in comparison: the pan-European STOXX600 equity index was up +1.21%, while the FTSE100 equity index was up +0.59%. All in local currency price return terms.
Tariff relief might be only temporary
Yesterday saw a huge climb-down in US-China tariff rates, and much more than had been hoped for in markets. Both sides reduced tariffs by 115 percentage points for a 90-day period, with US tariffs on Chinese exports coming into the US down to 30% from 145% (and China tariffs on US exports going into China down to 10% from 125%). But a note of caution that this tariff relief might be only temporary – keep in mind that as recently as last week, US President Trump had said that he felt that a “80% tariff on China seems right”, while previously he had talked about a 60% tariff rate during last year’s US Presidential election campaign.
Did China just agree to open up its economy?
Without offering any specifics, Trump yesterday said that as part of the US-China temporary tariff relief measures, he heralded “a total reset with China”, with China agreeing to “suspend and remove all of its non-monetary barriers”, and that “China agreed to open itself up to American business.” While Trump conceded that “it’s going to take a while to paper it, you know, that’s not the easiest thing to paper”, he said that this was “the best part of the deal .. maybe the most important thing” to have come out of the trade talks. If confirmed, this would be in line with the US Trump administration’s push for more market access in China for US businesses as part of resetting the balance of trade between the two countries.
What does Brooks Macdonald think
Yesterday’s better tariff news impacts bonds as well as equities. With the US-China tariff climb-down, that has quashed for now fears of an imminent US recession. However, the flipside of this relief around the economic growth outlook, is that there are now less interest rate cuts expected – that has driven government bond yields, both in the US but also elsewhere including UK and European yields, materially higher over the past 24-hours. While this has negatively hit bond prices across the bond maturity curve, relative-to-benchmark shorter duration bonds do provide a degree of insulation from such bond market volatility, given their relatively smaller interest rate sensitivity.
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Marcus Blenkinsop
13th May 2025