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Tatton Investment Management – The Monday Digest

Please see the below article from Tatton Investment Management detailing their discussions surrounding the ongoing Trump Tariff saga and how trade markets are responding. Received this morning 02/06/2025.

Complacency or checks and balances

The pullback a couple weeks ago has proved just a blip, thanks to the TACO trade (Trump Always Chickens Out) and a US trade court ruling Trump’s tariffs illegal (though the ruling was quickly suspended). Markets were happy but the previously “Mr Nice Guy” president was furious.

So we expected and got some Nasty Trump. On Friday, steel and aluminium tariffs were raised from 25% to 50%, probably signalling a greater focus on sectoral levies. While there is probably more internal logic to a sector-based approach, this makes country-based negotiations generally more complicated and certainly disrupts current talks. Deadlines are unlikely to be hit.

The start-date for the increase is Wednesday but, given his beef with the chicken jibe, there is virtually no hope of a Trump back-down.

The end of the Q1 US earnings season has been resilient. Nvidia continued to show the AI boom is driving profit growth. Meanwhile, US consumers are still showing some confidence and previous recessionary signals have faded. This helped credit spreads come down and financial conditions ease. The main problem now is that economic strength will prevent the Federal Reserve from substantially cutting interest rates – especially since companies are still retaining employees.

It’s notable that markets took the court’s tariff ruling so well, considering bond investors have been fretting about government debt. Tariff revenues are necessary to fund Trump’s tax cuts, and that’s why the Republican-controlled Congress will almost certainly hand tariff-setting power back to the president.

Unlike the US, the UK is signalling some fiscal discipline but a little less so. Everyone expects tax rises to fund the budget gap, and Reeves intends to keep to the rules – except that she might change those rules to allow more investment spending, given that the IMF helpfully suggests she cuts herself some slack. Any such change will give the UK a one-off boost, raising overall debt levels and increasing probably, marginally, increasing the interest burden. Nevertheless, on balance, the policy mix is likely to improve long-term stability, helping rate expectations and sterling. It’s just unfortunate that our borrowing costs are still heavily tied to the undisciplined US.

As for the fights a wounded Trump might pick, the Fed independence question could rear its head again. The Supreme Court recently suggested the president could fire who he wants, but curiously signalled an exception for the Fed. Jerome Powell shouldn’t get too comfortable though, as many in the White House are looking to test the bounds of executive power.

Meanwhile, China’s economic weakness is being taken as evidence that Beijing might play nice – but this might be mistaken. Beijing could well replace economic prosperity with nationalist expansionism, like a rumoured Taiwan blockade in the autumn.

But markets are more focussed on the positives. We hope that’s a good sentiment sign, rather than complacency. 

The end of US exceptionalism?

By “American exceptionalism” we mean the dominant of US asset performance over the last decade and a half, particularly in stocks. This shouldn’t be confused by the political theory of American exceptionalism – though the shared name is no accident; both about people believing that the US is exceptional. This has manifested in US assets being the best and safest earners in tangible (Sharpe ratio) and intangible (reserve currency safe haven, stable business-friendly government) terms. We’ve written before about how the US’ current account deficit typically returns as a flow of dollars into its asset markets. That, combined with US businesses’ focus on high profit industries, has led to corporate profits and equity valuation outstripping the world.

But Trump’s erratic policies are undermining both pillars of American exceptionalism: high returns and low risks. His obsession with balancing the trade deficit would undermine the flow of dollars back into asset markets, but even without that the uncertainty is preventing business investment and souring consumer sentiment – which dampens long-term returns. That uncertainty also makes US assets riskier, like the spike in volatility we saw post “Liberation Day”. It’s telling that the dollar has not recovered in line with US stocks recently, suggesting the safe haven status has been weakened.

The end of US exceptionalism doesn’t mean bad returns; the US economy is too resilient for that, and ‘buy the dip’ mentality is too strong. But it means returns will be less world-beating. That’s a problem for American companies – as their high stock valuations depend on capital inflows which have already started reversing this year. We expect that trend to continue, as long-term institutional investors reduce their portfolio allocations to the US. This might only be a marginal change – but a marginal change on such a huge part of global markets means a big impact on global markets.

China’s Belt and Road

US trade isolationism has many wondering if China could capitalise – perhaps through its Belt and Road Initiative (BRI). More than 150 countries have signed BRI agreements with China, which typically provides capital and labour for overseas infrastructure. Westerners often consider the BRI a foreign policy tool, but it was originally a solution to economic imbalances: China had too much capital and construction capacity, but needed access to materials.

Some accuse Beijing of “debt trap diplomacy”, as BRI agreements are opaque and have left poor countries facing high debt payments. Foreign policy experts don’t find this accusation credible, and many BRI agreements have been mutually beneficial – particularly with Latin America, which now trades more with China than it does the US.

Beijing would struggle take advantage of US isolationism, though, and BRI investment has slowed in recent years amid an economic downturn. Beijing domestic stimulus programs take precedence over building trade ties. The trade ties China is building seem mostly practical – ‘connector’ countries on route to the US.

Cutting off China is also part of the US’ plan – as seen in Panama abandoning its BRI deal after a visit from Washington. The Trump administration also made sure to include anti-China measures in its trade deal with the UK, and is reportedly planning to do the same for any EU deal. The US wants to force its trade partners to chose between the world’s two largest economies.

There’s no guarantee everyone will pick America, of course. Brazil’s Lula recently declared he wants “indestructible” relations with China, at a conference of 33 Latin American and Caribbean countries in Beijing. President Xi notably promised to back Panama against US threats at that meeting, showing how the US’ hard line could backfire. A Chinese-dominated world trade order is unlikely but, amid US aggression, many leaders will like the sound of Xi’s promised multipolar world.

Please continue to check our blog content or advice, planning issues and the latest investment, market and economic updates from leading investment houses.

Alex Clare

02/06/2025

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Brooks Macdonald – Daily Investment Bulletin

Please see below, Brooks Macdonald’s Daily Investment Bulletin which summarises the key factors currently impacting global investment markets. Received today – 30/05/2025

What has happened

Optimism around potential tariff relief outweighed mixed economic data, boosting market sentiment. The S&P 500 gained +0.40%, with ten of its eleven sectors advancing. The Magnificent 7 stocks hit a three-month high, up +0.61%, driven by Nvidia’s strong +3.25% performance.

Tariffs back in place

Yesterday, Federal Appeals Court temporarily upheld tariffs imposed under the International Emergency Economic Powers Act, including a 10% baseline tariff, a 20% additional tariff on China, and a 25% tariff on non-USMCA-compliant imports from Mexico and Canada. In the meantime, the White House is exploring alternative tariff powers under the Trade Act of 1974, which allows 15% tariffs for 150 days to address trade imbalances and allows tailoring country-specific tariffs after investigation. While legal challenges are likely, this approach could stand on stronger legal footing than the current framework.

Data drives rate cut hopes

Markets also saw weaker economic data than expected. Weekly jobless claims rose to 240,000 (above the 230,000 forecast), and continuing claims hit 1.919 million (versus 1.893 million expected). Q1 GDP showed personal consumption growth revised down to +1.2%, the weakest in seven quarters. April’s pending home sales also dropped significantly, the largest decline since September 2022. These figures fuelled hopes for Federal Reserve rate cuts, with markets now pricing in 50 basis points of cuts by December.

What does Brooks Macdonald think

Recent tariff developments are getting hard to keep up. In a week, we have seen a 50% EU tariff announced, delayed by five weeks, and a US Court ruling against broad tariffs, followed by an appeals court stay keeping them in place. At the same time, the Trump administration is prepared to pivot to alternative tariff powers if needed. While a court ruling could potentially reduce tariffs, a return to a pre-2025 ‘tariff-free’ world seems unlikely. We expect ongoing trade policy uncertainty to influence markets, but resilient corporate earnings and increasing expectations of Fed rate cuts could support risk assets in the near term.

Bloomberg as at 30/05/2025. TR denotes Net Total Return.

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Marcus Blenkinsop

30th May 2025

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Brooks Macdonald – Daily Investment Bulletin

Please see today’s Daily Investment Bulletin from Brooks Macdonald covering the overnight news that the US Court of International Trade ruled that President Trump lacked the authority to impose the ‘Liberation Day’ tariffs:

What has happened

Yesterday was a quiet day for markets, with the S&P 500 dipping 0.56% after Tuesday’s 2.05% surge, while Europe followed a similar trend. The big news came after the US market close, when the US Court of International Trade ruled that President Trump lacked the authority to impose the ‘Liberation Day’ tariffs. This decision sparked a global market rally, with S&P 500 futures jumping 1.60% overnight. The positive sentiment spread globally, with Asian equity indices advancing and European markets opening higher this morning.

US trade court strikes down Trump’s tariffs

The US Court of International Trade unanimously ruled that the Trump administration lacked the authority to impose most of its recently announced tariffs under the International Emergency Economic Powers Act (IEEPA). This decision nullifies several tariffs, including the 10% baseline reciprocal tariffs announced on April 2, the 25% tariffs on Canada and Mexico, and the 20% duties on China tied to border crossings and fentanyl traffic. However, tariffs on steel, aluminium, and automobiles, enacted under separate authorities like Section 232 for national security, remain unaffected. The Justice Department has filed an appeal with the US Court of Appeals, and this case could potentially reach the Supreme Court. While President Trump has not yet commented publicly, the ruling poses a challenge to the administration’s tariff strategy, which aimed to use tariff revenue to fund tax cuts. For now, the decision may delay high tariff rates, giving businesses and investors more time to adapt.

Nvidia revenues holding up

Nvidia’s Q1 earnings, released after the US market close, further fuelled market optimism. The chip giant reported $44.1 billion in revenue, slightly above the $43.3 billion expected, and forecasted $45 billion for Q2, in line with analyst projections despite an $8 billion sales hit from US restrictions on AI chip exports to China. Nvidia’s shares jumped nearly 5% in after-hours trading. However, the broader tech sector faced headwinds earlier in the day. A Financial Times report revealed that the Trump administration ordered US chip design software companies to halt sales to China, leading to sharp declines in stocks like Cadence Design Systems (-10.67%) and Synopsys (-9.64%). The ‘Magnificent 7’ tech group also fell 0.53% before Nvidia’s earnings provided a counterbalance.

What does Brooks Macdonald think

While the tariff ruling is a setback for the Trump administration’s trade agenda, it is not the endgame. The ongoing appeal could overturn the decision, and the administration may pivot to alternative tariff mechanisms, such as expanding Section 232 tariffs used for steel, aluminium, and autos. Nonetheless, the decision could slow the pace of aggressive tariff hikes, offering investors and businesses a window to adjust. It also underscores the strength of the US judicial system in upholding the rule of law. However, with multiple other legal pathways available for imposing tariffs, the tariff war is far from over.

A table with numbers and text

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Andrew Lloyd

29/05/2025

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Brewin Dolphin – Markets in a Minute

Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 28/05/2025:

Bond vigilantes return

U.S. government bonds (treasuries) fell in price as investors required higher yields. A 20-year auction (government sale of bonds to investors) saw weak support and a bump up in yields, adding to U.S. borrowing costs.

The rapid expansion of U.S. government debt, which has accelerated in recent years, has started to cause ructions in the bond markets. U.S. President Donald Trump’s administration has helped craft a tax and spending bill that’s currently under negotiation in Congress. The bill narrowly passed the House of Representatives by a vote of 215 to 214 and is widely expected to increase the federal budget deficit. It still has to pass the Senate, which may require more changes, to become law.

As it stands, the deficit increase is largely mitigated by tariff income, but this is controversial because tariff income doesn’t reflect current legislation; instead, it stems from executive emergency powers with an implication that it should be temporary in nature (although seems likely to remain in place).

Ultimately, Congress can convince itself that tax cuts can pay for themselves through higher growth, but the bond market is more objective. More issuances seem to be driving the increase in bond yields.

Bond vigilantism occurs when the bond market sells off and borrowing costs rise in response to the government seeming to want to pursue unsustainable policies. It ended Liz Truss’s premiership in the UK, and it may have prompted President Trump to reverse course on his ‘Liberation Day’ tariffs.

One of the inconsistencies of the new trade policy is that by discouraging trade with the U.S., President Trump’s also discouraging the use of the dollar as the world’s reserve currency and, in doing so, is making it less important for foreign investors to lend to the U.S. government. This has led to a decrease in demand for U.S. treasuries at a time when the government wants to borrow more and therefore sell more treasuries.

Yields are heading towards more attractive levels, but the path of least resistance is for treasury yields to rise. 

Inflation could be an additional concern for the U.S. bond market, but when dissecting the movement of the U.S. yield curve into different components, it doesn’t seem to be the greatest concern.

Output prices are on the rise

 Longer-term inflation expectations have been stable despite alarming results of consumer inflation expectation surveys.

This week’s purchasing managers indices (PMIs) suggested that European economies, including the UK’s, remain sluggish. More notable was the significant improvement in U.S. business conditions, at least as far as new orders are concerned. But perhaps the most significant series of data was that related to output prices.

According to the PMIs, a significant majority of U.S. companies increased their prices. Since the ‘Liberation Day’ announcements, that proportion has been increasing sharply. The increase was “overwhelmingly linked to tariffs”, according to company responses. 

So, while it’s been frustrating that surveys continue to suggest that the impact of tariffs has been more meaningful than activity data suggest, here’s more compelling evidence that tariffs will weigh on U.S. consumers and businesses in the coming months.

A graph of a sales increase

AI-generated content may be incorrect.

A welcome boost to UK retail sales

UK retail sales figures for April were pleasantly surprising, with a 1.2% increase in sales over the month. The sunny weather and late Easter likely played a big role in boosting sales, especially for outdoor goods and Easter treats. However, some of the growth was simply a rebound after a couple of tough months. As a result, it’s likely that retail sales will slow down in the coming months.

The underlying trend is still positive though. Retail sales have been steadily increasing since late 2023, driven by growing real wages and consumer confidence. Spending should continue to grow, albeit at a slower pace.

On the inflation front, the news is more mixed. Inflation surged to 3.5% in April, driven mainly by government-set price hikes, such as the 26% increase in water and sewerage bills, and the doubling of Vehicle Excise Duty rates. Airfares and package holidays also contributed to the rise, partly due to the timing of Easter. However, even excluding these one-off factors, underlying inflation pressure remains stubborn.

The Bank of England’s Monetary Policy Committee (MPC) is likely to proceed with caution, and the two additional rate cuts previously expected this year now seem open to question.

Looking ahead, headline inflation will average around 3.5% between April and December, driven by strong wage growth, hikes to the minimum wage, and tax increases. It’s expected to remain above target for an extended period, risking further de-anchoring of inflation expectations and persistent wage pressure. This is what the MPC needs to guard against.

UK bonds weakened over the week. They’ve been buffeted by both inflation and strong sales but also in sympathy with the bond vigilantism in the U.S.

A graph of a graph showing the growth of the company's sales

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Andrew Lloyd

29/05/2025

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Brooks Macdonald Daily Investment Bulletin

Please see the below article from Brooks Macdonald detailing their discussions on further developments in the Macro environment. Received this morning 28/05/2025.

What has happened

Following the US and UK holidays, global equities delivered a strong performance yesterday. The rally was partly driven by a delayed market response to President Trump’s decision to postpone 50% EU tariffs until July 9. The S&P 500 surged 2.05%, snapping a four-day losing streak, with the Magnificent 7 stocks leading the charge, gaining 3.24% ahead of Nvidia’s highly anticipated earnings release. The rally was broad-based, with the Russell 2000 small-cap index climbing 2.48%. Globally, Germany’s DAX and Canada’s S&P/TSX hit record highs, while Europe’s STOXX 600 posted a second consecutive day of gains. Meanwhile, the 10-year US Treasury yield fell 6.7 basis points to 4.45%, signalling a pause in recent upward pressure on yields.

Global bond yields lower

A big catalyst for market rally was developments in Japan. The 30-year Japanese government bond yield fell by 19 bps, which was the largest single-day drop since the regional banking crisis of March 2023. This movement reversed recent upward trends, as the 30-year bond yield had previously reached their highest levels since the bond’s issuance. The decline followed reports that Japan’s finance ministry circulated a questionnaire to market participants, leading to speculation of reducing long-dated bond issuance. The rally in Japanese bonds produced ripple effects globally. The US 30-year Treasury yield dropped 8.6 basis points to 4.95%. In Europe, 30-year yields also declined, with Germany (-6.1bps), France (-5.6bps), and Italy (-5.8bps) all seeing notable pullbacks.

May consumer confidence rises sharply

Adding to the positive momentum, the US Conference Board’s May consumer confidence index rose sharply to 98.0, exceeding expectations of 87.1 and marking the first increase in six months. The expectations component soared 17.4 points to 72.8, the largest monthly gain since May 2009, reflecting optimism as trade tensions eased. This piece of data cemented the view that a significant economic downturn is unlikely, hence further supporting risk assets across the board.

What does Brooks Macdonald think

The combination of easing trade tensions, resilient consumer confidence, and falling bond yields provides a supportive backdrop for equities and other risk assets, particularly in sectors tied to economic growth. However, uncertainties around upcoming corporate earnings and potential shifts in monetary policy warrant vigilance.

Bloomberg as at 28/05/2025. TR denotes Net Total Return.

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Alex Clare

28/05/2025

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Tatton Monday Digest – Return of the bond vigilantes

Please see below article received from Tatton Investment Management this morning, which provides a global market update for your perusal.

We probably should have expected some stock market pullback, after weeks of recovery. We certainly should have expected that Trump wasn’t done with tariff threats – his, now delayed until 9 July, 50% EU tariff threat hit markets on Friday – but stocks were falling even before that, thanks to higher government bond yields (resulting from planned US tax cuts and the resulting fiscal instability). 

This has echoes of 2022, when higher yields put a ceiling on equity returns. Our equity valuation model is sensitive to long-term real rates, which are themselves sensitive to measures of government fiscal risk. That risk isn’t just a US problem: deterioration in the world’s largest bond market would push up yields everywhere – much more than the UK’s budget fiasco of 2022. 

Trump’s tax cut plans will reportedly cost $3.3tn in lost revenue over 10 years. Bond buyers hope that tariff revenues will make up much of the shortfall – the inevitable conclusion being that the president can’t afford to lower tariffs any further, which may even explain the EU threat. But lower tariffs are what excited US stock markets over the last month. It’s a rock and hard place: stocks tantrum when tariffs go up; bonds will tantrum if they go down. 

This suggests that US stocks and bonds are competing for the same capital. In the past, capital inflows to the US meant they didn’t have to. But with America’s safe haven status under threat, US underperformance is becoming a trend that will be hard to reverse. Higher bond yields have room to come down, for example, but that requires policy stability – which has already deteriorated. 

We’ve warned before about US companies facing high debt costs, which are increased by higher ‘risk free’ government yields. For mid and large-cap borrowers, this hurts their refinancing costs and stock valuations. This isn’t recession point, but higher bond yields mean the risk isn’t negligible. 

UK inflation unease


UK inflation was 3.5% in April – above expectations and the highest figure since January 2024. Most coverage focussed on tax impacts and Ofgem’s higher energy price cap, but planned one-offs typically don’t raise long-term inflation. More worrying for the Bank of England was surprisingly strong airfares and service prices, suggesting strong consumer demand and wages. They scuppered any remaining hopes of an interest rate cut next month. Even before the report, BoE chief economist Huw Pill argued that rate cuts to now had been too quick. 

April’s surprise challenges our previous hunch that UK inflation would be weak, but the underlying numbers aren’t as clear cut. Core goods came in below forecast, for example, while the BoE’s own measure of service prices decelerated from March. Opinions on where UK inflation will be at the end of 2025 are mixed, and it’s worth bearing in mind that, prior to last month, UK price levels were growing at a similar rate to Europe and below the US. Bearing in mind one-offs and seasonal factors (like financial year-end rises indexed to past inflation) we would expect inflation to fall in the near-term. 

Bond markets are unsure how much it could fall, though, which is why long-term government bonds sold off and, hence, yields rose sharply. But UK yields are still closely correlated with the US and the difference between the two is narrower than two months ago. Basically, the inflation surprise forced a bond adjustment, but not a panic. 

We should also remember that inflation and growth are two sides of the same coin – and Britain’s stronger-than-expected Q1 growth would have contributed to price rises, particularly for wage-sensitive services. That’s why UK stocks didn’t move much in response. Even if inflation means higher than expected rates and yields, the resulting growth should support profits. 

UK-EU trade deal a positive for investment


Economically, both the benefits and concessions of Britain’s “reset” deal with the EU have been overstated by politicians. Fisheries are a tiny fraction of the UK economy so, in pure trade terms, the agriculture and energy benefits outweigh the cost of giving Europeans access to our waters. But the long-term economic benefit is still miniscule compared to the estimated costs of Brexit – which is why both sides painted the deal as a starting point, rather than job done. 

The real prize for the UK would be the ability to sell financial services into the EU – and Europe would benefit too. The UK has a highly developed capital markets framework, which the EU lacks. Both regions suffer from underinvestment problems: Europeans save too much, while UK investors – particularly pension funds – simply don’t buy enough UK stocks. This is arguably one of the reasons the UK and Europe have underperformed the US for so long. 

The UK is trying to address this problem with its “Mansion House Accord”, through which pension providers agreed to invest £50bn in UK businesses. There are rumours of something similar in the EU.

British and European regulators would do well to act now – as both regions have benefitted from Trump-spooked investors moving money out of the US this year. Those flows have already dried up somewhat, after the US president backed down on tariffs. If policymakers want the short-term investment flows to turn into something more, structural changes are needed. 
Not only would this boost stock values, it would mean more money for smaller riskier ventures. That means investment in innovation, like AI. Indeed, the US’ strong investment impulse is one of the reasons for its economic and financial outperformance. In a Trump-shocked world, we suspect Britain and Europe’s political will to make these structural changes will be strong. 

Please check in again with us soon for further relevant content and market news.

Chloe

27/05/2025

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Brooks Macdonald – The Daily Investment Bulletin

Please see the below article from Brooks Macdonald detailing their discussions on global bond markets. Received this morning 22/05/2025.

What has happened

Both equity and bond markets were on the back foot yesterday. The catalyst was renewed investor angst around US debt sustainability with negotiations continuing over a US tax-cut and spending-cut bill – a bill which in its current form is expected to add to the longer-term US debt and interest cost burden. That backdrop drove a weaker-than-expected US government bond auction for 20-year maturity bonds yesterday, which in turn pushed longer-dated bond yields up in particular – the US 30-year government bond yield closed yesterday above a key psychological level of 5% for the first time since October 2023, and a fraction away from its highest level since 2007.

A global rise in government bond yields

While yesterday’s rise in government bond yields included notable rises in longer-dated yields, it was not just a US-story. Yesterday saw a further nudge up in longer-dated government bond yields across developed economies, from the US, to the UK, to Japan. Looking at 30-year government bond yields, while the US topped 5%, the UK was over 5.5% yesterday and trading around its highest levels since the late 1990s, while over in Japan the yield at one point yesterday hit 3.185%, an all-time high.

Latest Purchasing Manager Index (PMI) data

A key focus today will be the latest preliminary PMI economic activity survey data across key economies globally for May – it is likely to be of particular interest as it will offer a snapshot on how the global economy is responding since US President Trump unveiled his trade tariffs back on 2 April. For Japan where the data was out earlier this morning, that picture is not overly encouraging – Japan’s overall composite measure (which includes manufacturing and services) fell into month-on-month contraction, while the manufacturing print has now chalked up its 11th consecutive print of month-on-month contraction. Elsewhere, the German PMI is also out this morning, recording a fall in composite activity in May, and marking the first contraction this year.

What does Brooks Macdonald think

Global bond markets are arguably sending some concerning signals currently. While governments around the world might be hoping to sustain spending commitments and manifesto promises to their electorates, against this, global bond markets, with higher yields, are as a result driving an unwelcome reappraisal of what level of government debt might be deemed sustainable and what is not. Given this investment backdrop, this morning’s UK government borrowing figures will likely only add to that broader market concern – the April numbers show an unexpected rise in UK public sector net borrowing to £20.2bn for the month, up year-on-year (versus £19.2bn in April 2024) and well ahead of a Reuters poll that had expected a fall to £17.9bn – the UK’s latest month’s borrowing figure is the highest, in any month, since April 2021, and is the fourth-highest borrowing figure for April since monthly records began back in 1993.

Bloomberg as at 22/05/2025. TR denotes Net Total Return.

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Alex Clare

22/05/2025

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Evelyn Partners Update – UK April CPI Inflation

Please see below Evelyn Partners thoughts on this morning’s UK inflation announcement for April.

What happened?

UK April annual headline CPI inflation came in at 3.5% (consensus: 3.3%), versus 2.6% in March. In monthly terms, CPI was up 1.2% (consensus: 1.0%), compared with 0.3% in March.

Annual core CPI inflation (ex-energy, food, alcohol and tobacco) came in at 3.8% (consensus: 3.6%) vs 3.4% in March.

What does it mean?

An acceleration in UK CPI inflation for April was expected, driven by a triple-whammy of:

i) Large indexed and regulated price increases, including mobile phone charges, vehicle excise duty, and water & energy bills.

ii) A later-than-usual Easter weekend, which lifted airfare and accommodation prices.

iii) Businesses passing on the higher National Minimum Wage and employers’ National Insurance (NI) contributions to consumers.

Looking forward, it is unclear whether businesses can fully pass on higher labour costs to consumers through price increases. Given tight margins in the retail sector, food retailers are likely to pass on these costs, adding further complexity to the BoE’s Monetary Policy Committee (MPC) to make decisions on inflation and interest rates.

The Bank of England forecasts annual CPI inflation will average 3.4% in Q2 and peak at 3.5% in Q3. If inflation exceeds expectations, the MPC may delay interest rate cuts at its next meeting on June 19. In its May meeting, the MPC did not signal urgency to cut rates.

However, if services CPI inflation slows and pay growth eases, alongside a slightly rising unemployment rate, the BoE may resume rate cuts in the second half of 2025.

Bottom Line

Faster UK inflation is likely to encourage the BoE to maintain a slower pace of interest rate cuts. This should provide some upside to the sterling exchange rate against the dollar.

Please continue to check our blog content for advice, planning issues and the latest investment market and economic updates from leading investment houses.

Charlotte Clarke

21/05/2025

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Brewin Dolphin – Markets in a Minute

Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 20/05/2025.

U.S. inflation slows beyond expectation

Explore how President Trump’s new tax bill and recent U.S. financial data could shape the economic landscape.

The equity rally continues

S&P 500 closing in on a new all time high

Source: LSEG Datastream

The S&P 500 reached its all-time high on 19 February – just three months ago. Since then, the market has been on a wild ride. The S&P 500 dropped nearly 8% between Inauguration Day and ‘Liberation Day’ (2 April).

When ‘Liberation Day’ came along, the confusing announcement of tariffs on every country America trades with – with rates varying between punitive and catastrophic – was taken poorly. The S&P 500 lost a further 12% of its value. Other global markets did better but still reacted negatively to the news.

Since then, U.S. President Donald Trump has announced the deferment of the most painful individual tariff rates, causing a sharp rally. China was hit with effective embargo tariff rates of 145% and the promise of additional curbs on the semiconductor supply chain, but a sharp decline in this tariff rate was announced last week.

President Trump now plans to overhaul the broad ‘AI diffusion rule’ implemented under former President Biden. The rule organises countries into three tiers, which all have different restrictions on whether advanced AI chips can be exported to the country without a licence. It seems that he plans on replacing it with individual deals negotiated with countries, however, the use of Chinese technology such as Huawei’s Ascend AI chips could prevent such agreements.

President Trump has been negotiating chips sale agreements with some Middle Eastern countries. The semiconductor deal-making continues to drive a huge rally in related stocks, which has been aided by the general equity rally and change in tone on trade.

All this leaves the U.S. equity market 4% above its ‘Liberation Day’ level, and just 4% away from a new all-time high.

Foreign exchange markets have seen less relief. Since Inauguration Day, the U.S. dollar has slipped 5%. Since ‘Capitulation Day’ (when President Trump deferred the higher individual tariff rates by 90 days), it has rallied 2%.

Investors shouldn’t forget the reasons for a widely-held overweight position to U.S. stocks. Some U.S. companies are exceptional and offer unparalleled access to the technology and AI-enabled changes that will transform the economy over a few years. But they should remain aware of the damage done to America’s reputation as a trading partner. Investors will rethink allocations to U.S. assets, while reserve managers will rethink the need to hold U.S. debt. Small changes here can have big implications.

This cocktail could allow the Federal Reserve to cut interest rates, but for now, it will want to see more evidence of modest inflationary pressures.

Trump trades are reversing

In addition to the above, other fallout from ‘Liberation Day’ has been dispersing. A hot topic is gold, which has shown signs of slipping following two failed attempts to decisively breach $3,400 per ounce.

A mellowing trade war is bad news for gold, but the seemingly intact trend of diversifying away from the U.S. remains supportive. After the enormous rise, a consolidation seems healthy.

Last week, bonds benefitted from the ebbing of inflation concerns due to reduced tariffs. The picture is very complicated with regards to U.S. treasuries, as they must balance worse inflation and worse growth. In addition to this and the potential reduced demand from overseas buyers, there’s also the prospect of changes in bond issuance.

The U.S. House Committee on Ways and Means (the Committee), which is responsible for writing tax law, released draft legislation last week. Although not all these proposals will become law – final legislation needs to be approved by Congress before going to the president to sign – it’s worth looking at what’s contained in this blueprint. By far, the costliest part of the tax package is the ten-year extension of the individual rate reductions, which are set to expire this year.

The Committee also included President Trump’s unorthodox tax cut promises of no tax on tips and no tax on overtime in the draft – but these are planned to last for only four years. President Trump had also promised to end taxes on Social Security benefits, but this has instead provided for a so-called ‘enhanced deduction’ for seniors on top of the regular tax deduction. The proposal also calls for no tax on car loan interest. 

To offset the costs, the plan proposes reducing the state and local tax (SALT) deduction limit, which is currently capped at $10,000. Some Republicans from high-tax areas are likely to push back, as they favour higher deductions. The plan also eliminates several clean energy tax credits introduced under President Biden, including the $7,500 electric vehicle tax credit. Notably, it retains the current top tax rate of 37%, contrary to President Trump’s recent suggestion to raise it to 39.6% for those earning over $2.5 million annually.

Overall, the plan increased the deficit by $3.7trn over a decade. It could be bolstered if the administration can restrict Medicaid coverage, and there will be benefits to the Treasury from funds raised by tariffs, but they’re not scored because they’re emergency measures rather than legislative ones.

Similarly, savings through the Department of Government Efficiency will reduce federal costs, but as the funds being saved have already been approved by the government, the administration is theoretically required to spend them. If these savings can be made to stick, that can be considered in future appropriations.

The outlook for U.S. fiscal policy is far from clear three months into the Trump administration’s mandate, and the quick win it sought continues to look elusive.

The economy remains robust

US government borrowing costs

Source: LSEG Datastream

Is the U.S. economy reflecting the extreme pessimism from consumers? Yes, to an extent.

Retail sales growth was muted but hardly collapsed. There was weakness in some sectors, particularly those affected by Chinese tariffs which, prior to their relaxation, had been acting as an embargo rather than a tax.

Audio equipment and electronics saw sharp increases in prices when Consumer Price Index (CPI) data was released. Audio equipment prices rose almost 9% in a month, which was easily the highest increase going back to the beginning of the data series in 2009. 

Retail sales data showed a slight increase in spending on electronics, which suggests that people have bought fewer goods for more money. In other categories, inventories are still masking the impact of measures. At a headline level, weak services prices – reflecting caution from U.S. consumers – are holding prices down.

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Charlotte Clarke

21/05/2025

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Brooks Macdonald – Daily Investment Bulletin

Please see below, Brooks Macdonald’s Daily Investment Bulletin which summarises the key factors currently impacting global investment markets. Received today – 20/05/2025

What has happened

If equity markets were looking to take a breather from the latest rally, yesterday saw only the briefest of pauses. Following news of the US sovereign credit rating downgrade from Moody’s last Friday, the US S&P500 equity index opened lower on Monday but rallied through the day to close up in positive territory in local currency price return terms – it was a similar picture in bonds, with US government bond yields higher early on, only to fall back through the day. Overnight, investor sentiment has been buoyed by news that China’s central bank, the People’s Bank of China, has cut its 1-year and 5-year interest rates for the first time since October last year, while over in Australia, the central bank there has also cut its interest rate (for only the second time this cycle) but this move from the Reserve Bank of Australia was widely expected.

Moody’s downgrade criticised

Yesterday saw criticism from the US Trump administration of Moody’s US sovereign credit rating downgrade. US Treasury Secretary Scott Bessent dismissed the move, saying that “Moody’s is a lagging indicator – that’s what everyone thinks of credit agencies”. That view was also shared by White House National Economic Council Director Kevin Hassett who said Moody’s decision was “backward-looking”, while noting the current US administration’s commitment to cut federal spending.

For context, the one-notch cut by Moody’s comes more than a year after the credit rating agency changed its outlook on the US rating to negative (back in November 2023) – furthermore, Moody’s was the last of the big 3 credit agencies to cut the US debt rating from the highest tier – Fitch downgraded in 2023, while Standard & Poor’s cut over a decade earlier in 2011.

US tax cut plans

The US Trump Republican administration are currently negotiating in Congress, a proposal to pass an extension to the 2017 Trump tax cuts which are currently due to expire at the end of this year, as well as introduce new tax cuts. Also tied to those tax proposals, are plans to cut back on government spending in areas such as healthcare, social security programmes, and green energy tax breaks. However, even though Republicans control both houses in Congress, there is disagreement between Republicans as to the scale of spending cuts in particular.

What does Brooks Macdonald think

After the rally from the April lows, the outlook for markets from here might arguably be reduced to the balance between two competing forces: US tax cuts versus US president Trump’s tariff plans. However, it is unfortunately not that simple, and while tax cuts can provide a shot in the arm for near-term consumer spending expectations, it might also store up concerns down the line as regards US government debt sustainability. Optimistically, tax cuts can stimulate economic activity so that the tax base of a country can grow, but it can also make an economy more vulnerable in an economic downturn.


Bloomberg as at 20/05/2025. TR denotes Net Total Return.

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Marcus Blenkinsop

20th May 2025