Please see below, Brooks Macdonald’s Daily Investment Bulletin which summarises the key factors currently impacting global investment markets. Received today – 05/06/2025
What has happened
Wednesday saw global equities (as measured by the MSCI All Country World Index in US dollar price return terms) hit a fresh all-time record high for the first time since February earlier this year. Yesterday’s gains came about despite weaker US economic data, as investors instead appeared to focus on hopes that the data could boost chances for interest cuts later this year. That global equities have hit a fresh record is pretty impressive (albeit measured in dollars where the US dollar is weaker in recent months) given there is still significant uncertainty on the tariff policy outlook. Later today, the focus is on the European Central Bank (ECB) interest rate decision due at 1.15pm UK time, where an interest rate cut (which would be the ECB’s eighth cut in the current cycle) is widely expected.
US banking deregulation expectations
Yesterday saw Senate approve US President Trump’s pick of Michelle Bowman for the position of US Federal Reserve (Fed) vice-chair for banking supervision. Bowman, who has served on the Fed’s board as a governor since 2018, is expected to be a ‘light-touch’ advocate, in keeping with Trump’s plans for banking deregulation, and is expected to get such a programme underway – this would also fit with recent comments from US Treasury Secretary Scott Bessent who said last month that “the growth of private credit tells me that the regulated banking system has been too tightly constrained”. Amongst some of the possible banking deregulation measures under consideration, this could include a relaxing of the rules around setting banks’ capital buffer requirements, more co-ordinated and streamlined regulatory oversight, as well as quicker and likely more sympathetic regulatory views towards bank merger-and-acquisition activity going forwards.
US economic data buoys interest rate cut hopes
It seems we might be back to a ‘bad news is good news’ mindset in markets – this is the idea that bad economic news is good news for markets as it might buoy hopes for interest rate cuts. The weaker economic news yesterday came in two parts: first, an ADP Research Institute report of US private payrolls saw hiring up by the smallest increase in over 2 years, since March 2023; second, the US ISM (Institute for Supply Manufacturing) Services survey for May dropped below the 50-midpoint mark that splits the month-on-month economic picture between expansion versus contraction – it dropped to 49.9 in May from 51.6 in April – in addition, as the ISM chair Steve Miller commented, survey respondents “continued to report difficulty in forecasting and planning due to longer-term tariff uncertainty”.
What does Brooks Macdonald think
It will be interesting to see if any US-led banking deregulation spurs similar moves in other countries as banking regulators around the world will likely come under pressure to avoid suffering undue competitive disadvantage for their own home-grown banking champions. As a counter to this, there are valid arguments that too much banking deregulation might weaken the counter-cyclical ability of banks to weather economic downturns, which some government policy makers might be more cautious around relaxing. Either way, in the near-term, any banking deregulation is likely to boost banks’ lending growth outlooks and with it set an improved earnings outlook for the banks as well, providing another tailwind for risk-asset markets more broadly.
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Marcus Blenkinsop
5th June 2025