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Please see the below article from Brooks Macdonald, analysing the key factors currently affecting global investment markets. Received today – 15/04/2025

What has happened?

The relief rally continued. The S&P 500 climbed 0.79%, securing its first back-to-back gains since the 2 April tariff announcement. The decision over the weekend to exempt smartphones and electronics from tariffs fuelled investor optimism for further tariff reductions, creating a positive backdrop for stocks and signalling that market stress is starting to ease. Tech hardware leaders like Apple (+2.21%) and ASML (+2.20%) outperformed, while automakers also rallied after President Trump’s comments hinted at softer auto tariffs. Broad market strength saw 85% of S&P 500 stocks advance. Volatility continued to fall back too, with the VIX index coming down to its lowest since April 3. On the other side of the Atlantic, Europe’s STOXX 600 gained 2.7%, and UK’s FTSE 100 gained 2.1%.

Bond market breathes a sigh of relief

While stocks rallied, the bond market offered perhaps the biggest relief for investors. Last week, fears of financial turmoil spiked as the 10-year Treasury yield jumped 50 basis points (the largest weekly increase since 2001). But yesterday, those concerns began to fade as the yield fell from 4.49% to 4.37%. Additional reassurance came from the New York Fed’s latest Survey of Consumer Expectations, released for March. The survey showed that long-term inflation expectations remained stable, with the 5-year measure even dipping slightly to 2.9%. This contrasted sharply with the University of Michigan’s survey, which reported a surge in long-term inflation expectations to multi-decade highs. Fed Chair Jerome Powell has often emphasized the importance of keeping long-term inflation expectations “well anchored,” so the New York Fed’s data was a welcome signal for policymakers and markets alike. While the New York Fed’s 1-year inflation expectation rose to 3.6% (up 0.5%), it was far less alarming than the University of Michigan’s figures, which hit 5.0% in March and 6.7% in April.

What does Brooks Macdonald think?

The pullback in Treasury yields has provided a much-needed boost to market sentiment, especially after last week’s sharp rise dented the appeal of bonds as a safe haven asset. Treasury Secretary Scott Bessent has downplayed concerns about systemic risks, dismissing fears that foreign governments might offload US Treasuries en masse. Instead, he attributed recent bond market volatility to investors unwinding leveraged positions. Given the potential for ongoing yield fluctuations, we favour a relatively shorter duration stance in our fixed income portfolios, which helps limit exposure to these swings and provides a prudent strategy amid persistent tariff and market uncertainties.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Alex Kitteringham

15^th April 2025

Please see below, an article from Tatton Investment Management, discussing the ongoing impact of Trump’s Liberation Day. Received this morning – 14/04/2025

Ceasefire, not truce, in global trade war
Last week had eye-watering ups and downs. US bond yields spiked, prompting Donald Trump to pause his “reciprocal” tariffs for 90 days on all countries except China, which faces a whopping 145% – although somewhat lessened with the exceptions to smart phones and other electronics. Markets welcomed all tariff relief, but the overall average tariffs are still high. The dollar slid, despite higher yields, suggesting the US may no longer be a safe haven.

Trump eventually bowed to pressure from markets and his allies. This was mostly about the US bond selloff – which felt like Trump’s ‘Liz Truss moment. The Truss episode required Bank of England intervention in 2022, and the Federal Reserve may yet have to step in, considering yields haven’t fully recovered. In any case, it’s comforting that the bond vigilante remains powerful. 

We will hope for some policy calm, but the Trump show must go on. This weekend sees high stakes negotiations with Iran, and Trump has threatened force if they fail. We must watch this space. The 90-day tariff reprieve could also obstruct tax cuts, as tariff revenues were supposed to fund them. If Trump pushes ahead anyway, a second ‘Donald Truss’ moment could ensue in bonds. 

After Trump’s capitulation, investment banks are divided on whether a US recession is coming this year. Even with smart phone exceptions the 145% Chinese tariff means huge disruption to global trade and can seriously hurt both the world’s largest economies. The current Q1 earnings season has started well, but markets’ focus is all on what happens from here. We could actually see a short-term consumption boost if Americans rush to buy in the 90-day window, but that wouldn’t change the fundamentally weaker outlook. Companies’ forward guidance statements are therefore important. 

It’s a challenging environment for equities – with weaker growth prospects and more risk-averse markets. Washington stepping back from the brink is positive, but businesses and investors will be wary of putting their money to work. That likely means lower trading volumes and choppy price action. 

US exceptionalism has a credit problem 
Trump’s obsession with ‘fixing’ the US trade deficit causes such allergic reaction in US markets, in part because the trade deficit is to some extent why so much global investment flows toward the US. The dollars Americans spend on imports often return to buy US capital assets – considered the world’s strongest and safest. Part of that reputation is the “exorbitant privilege” of owning the world’s reserve currency, and part of it is the America’s track record for profit growth. That has led to a tremendously negative Net International Investment Position (NIIP), the amount of US assets owned by foreigners. The capital flow into the US markets has benefitted asset valuations, and hence US companies. 

Some call this a virtuous cycle, but the NIIP isn’t all rosy. Assets are supported by continual flows, which you might cynically call a Ponzi scheme. Even disregarding cynicism, it means a big chunk of US profits go to foreign stockholders rather than Americans. Trump has even called this a national security concern, with regards to Chinese ownership.

Cutting trade deficits stops the flow of dollars out – but that also means reducing American consumption, which has been the lynchpin of US growth. Profits become less exceptional and so valuations fall.

This adjustment has been made worse by Trump’s chaotic execution. Investors started panicking that high US valuations were built on sand. This was initially a problem for equities and the dollar, but last week the panic spread to bond markets – a sign that the trade war had uncovered landmines in global finance. There is now a risk that the dollar loses its reserve status. This is still unlikely, but it gets more likely the worse the policy outlook (and markets’ reaction) gets. 

Central banks have already been swapping dollars for gold since Russia’s SWIFT exit. If Trump is not careful, he might get the weaker dollar he wishes for. 

Anatomy of a bond rout
Spiking government bond yields last week felt like Donald Trump’s ‘Liz Truss moment’. The equity selloff after “Liberation Day” originally pushed bond yields down, as global growth prospects dwindled, but that suddenly reversed last week. China was rumoured to have started the bond selling, but it snowballed due to leveraged traders (hedge funds) selling bonds to cover their equity losses. The problem in US bonds spread to the closely correlated UK market – while European yields reacted more mildly. 

People call government bonds “risk free” but we have two important measures of their risk: the spread between long and short-term yields (term premium spread) and the spread between government yields and interbank swap rates (the swap spread). These measures have been worsening for a while. 

If we think central banks will print money for their governments in a pinch, then higher swap spreads make bonds look cheap. Hedge funds have been able to make money off this spread, but last week’s yield spike wiped out the differential and forced them to close their positions – including one highly leveraged Japanese fund that reportedly went bust. This short squeeze on yields doesn’t show weakness in the bonds themselves, but rather that overleveraged hedge funds didn’t have enough cash to meet margin calls. That’s the same problem UK pension funds had during the Liz Truss fiasco. 

The end result is that bonds look cheap – particularly in the UK, where the spike seemed to purely be a reaction to the US. You could argue US government debt has a “moron premium” right now, but that’s not the case for the UK, which has consistently displayed fiscal resolve and has funding options available. If we step back from the panic and stay level-headed, long-term UK bonds look like a buying opportunity. And when markets lose their heads, keeping yours often pays off. 

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Marcus Blenkinsop

14^th April 2025

Please see the below article from Brooks Macdonald detailing their discussions on Trump Tariffs and the ongoing impact this continues to have on markets. Received this morning 11/04/2025.

What has happened

Equity markets continued their recent bout of volatility yesterday, with the US S&P500 equity index only narrowly missing out on extending its 5-day run of intraday moves of more than 5%. The US S&P500 equity index on Thursday moved in an intraday range of 4.65% between the day’s low and high. That intraday range is still huge, but it reflects just how uncertain markets are currently that the move was less than half of the intraday range that we saw the day before on Wednesday. One catalyst for market gyrations yesterday was the US clarifying even higher tariffs on China, with that news overshadowing a welcome lower-than-expected US annual consumer inflation print of +2.4% for March.

A tariff clarification

The US White House issued a memo yesterday to clarify that tariffs on China were actually at 145%, not 125%. The 20-percentage-point hike was, the White House clarified, because the US President Trump administration was adding on top of the latest reciprocal 125% tariff rate, the 20% tariffs imposed from earlier this year related to Beijing’s alleged role in the production and supply of fentanyl into the US. With renewed fears of a disorderly economic decoupling between the world’s two biggest economies, it sent the US S&P500 equity index down -3.46%. European equity markets might have looked better yesterday (with the pan-European STOXX600 equity index up +3.70%), but that is only because Europe was playing catch-up with an even better US evening trading session the day before (all in local currency price return terms).

Are US Treasury government bond markets still in charge?

Since Trump’s 2 April reciprocal tariff ‘Liberation Day’, we have seen US equities, US bond markets and the US dollar all under pressure. While there might be technicals at play, and some news reports have suggested the recent moves are in part down to hedge-funds unwinding leveraged positions, the risk is that if this continues this could collectively resemble capital flight out of the US – as a case in point, it is notable that US 30-year Treasury yields are currently on course for their biggest weekly rise since the 1980s. The US Treasury market has long-been considered the ultimate safe-haven asset off which everything else is priced – so when earlier this week US government bond prices fell alongside weak demand for a Treasury 3-year bond auction, one theory is that it was this that triggered Trump’s rapid U-turn, and his partial tariff 90-day pause.

What does Brooks Macdonald think

At this point in the US-China trade war, any further hike in tariffs is meaningless – with US tariffs on China at 145%, and China tariffs on the US at 84%, at those rates it effectively amounts to a double-sided trade embargo in all but name. The hope in markets is that Trump, just like he did with other tariffs earlier this week, might walk-back the tensions with a ‘pause’ on US-China’s trade war too. If US Treasury government bond markets push back against Trump’s plans as they appear to have done earlier this week, a Trump ‘blink’ might well come sooner rather than later.

Bloomberg as at 11/04/2025. TR denotes Net Total Return.

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

Alex Clare

11/04/2025

Please see below, an article from Brooks Macdonald analysing the key factors currently affecting global investment markets. Received today – 10/04/2025

What has happened?

Yesterday saw equity markets move from despair to euphoria. While European equity markets had already closed down for the day trapped under fears of ever-escalating tariff wars, the later-trading US equity markets rocketed when the announcement came at 6.18pm UK-time from US President Trump on his ‘Truth Social’ social media network that he was immediately pausing reciprocal tariffs above a 10% baseline for 90-days for most countries excluding China (while separate Canada and Mexico tariffs would be left unchanged). The US S&P500 equity index notched up its fifth day in a row of intraday moves over 5%, with yesterday’s intraday range at over 10%, as the index jumped from losses at the start of the session, to finish up +9.52%, its biggest one-day gain since 2008. The US Nasdaq technology equity index finished up +12.15% to post its biggest one-day gain since 2001, all in local currency price return terms.

A 90-day Trump partial tariff pause fires up markets, but US-China trade war escalates

While Trump’s 90-day tariff pause news fired up markets, the US-China trade war has ratcheted up another notch. After a rapid tit-for-tat trade war escalation over the past week, where we now stand is that the US is levying 125% tariffs on Chinese goods coming into the US, while China is levying 84% tariffs on US goods going the other way. Even here, though, Trump offered some hope that the stand-off between the world’s two biggest economies might yet get resolved. Signalling that the US President was open to a conversation with Chinese President Xi Jinping, Trump said yesterday that “we will get a phone call at some point and then it’s off to the races.”

Bank of England warns of “the probability of adverse events”

Yesterday saw a warning from the Bank of England’s (BoE) Financial Policy Committee about second-order market impacts following Trump’s tariffs over the past week. In minutes released across two meetings held on 4th and 8th April, the BoE warned that “the risk of further sharp corrections remains high”, and that “the probability of adverse events, and the potential severity of their impact, has risen. The BoE went on to warn that “heightened global uncertainty and perceived higher economic risk could translate into tightened financing conditions”, while “vulnerabilities [such as leverage and credit market interconnections] could amplify shocks.”

What does Brooks Macdonald think?

A 90-day pause of the worst parts of Trump’s reciprocal tariffs is a huge relief for markets, but we are not out of the woods. While major US bank Goldman Sachs has overnight dropped its call for a US recession, this might be premature: the pause in some tariffs is still only a delay and not a cancellation, the blanket 10% tariffs are still in force, and the US-China tariff war looks worse not better, for now at least. The longer that Trump’s tariffs (whether in force or paused) remain, the greater the risk that something might ‘break’ in global financial markets, which could in turn impact economies more broadly. Over the past 24-hours, Trump has once again proved his proclivity for changing his mind on policy but with the tariff genie out of the bottle, restoring the confidence of businesses to invest or consumers to spend could be a lot harder to turn-around.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Alex Kitteringham

10^th April 2025

Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 08/04/2025.

Understanding the global stock sell-off

We examine the market response to President Trump’s trade offensive.

Liberation ‘Obliteration Day’

‘Liberation Day’ arrived on Wednesday, and the measures announced were at the more severe end of expectations. We understand from leaks that the Trump administration was still debating at what level to set tariffs until the eleventh hour, but they seemed pretty set by the time President Donald Trump spoke in the White House Rose Garden.

Although the president ordered a review of all unfair trade restrictions, the actual tariffs were set at half the level of each country’s trade surplus against the U.S. If that seems arbitrary, what was even more so was the fact that countries in deficit to the U.S. were still hit with a tariff, undermining any credibility to the spurious claim that surpluses are evidence of protectionism.

It’s an outrageous opening offer from a president who prefers making deals to policies. As he says in his book ‘The Art of the Deal’, “I always go in with a very low offer, and I always assume that the other side will negotiate.” But has he overplayed his hand?

After the Trump bump, the Trump hump and into the Trump slump

Source: LSEG Datastream

U.S. equities have noticeably underperformed European stocks, with individual companies reflecting the folly of protectionism. Apple has a business model in which its manufacturing is done in China and Vietnam – two countries at the more severe end of U.S. tariff announcements. Maybe this is activity the U.S. would like to be conducted at home, but it doesn’t have the capacity to do so. Nike is a great example of an iconic American brand whose high value-added activities take place in the U.S., while the manual and laborious manufacturing activity takes place where labour is cheaper. Bringing those jobs to the U.S. relies upon American workers being willing to do the work.

President Trump is ready to make deals, but whether there’s any scope to reduce the baseline 10% tariff seems highly questionable, and some potential growth has been diminished. For decades, he has lauded the tariff and bemoaned America’s trade deficit, so he sees tariffs as here to stay, and they’ll be oppressive until the U.S. trade deficit comes into balance. However, tariffs won’t achieve that objective, and so will remain in place. The scope of them is likely to be reduced somewhat, though, due to the president’s fondness for making deals.

Coupled with his clampdown on immigration, some of the key tenets of U.S. exceptionalism are being undermined, and it definitely makes sense to look more widely for investment opportunities.

U.S. added 209,000 jobs in March

The backdrop for last week’s tariff announcements was pretty supportive of a tough Trump bargaining position.

The most obvious data point was Friday’s non-farm payroll report, which showed that a consensus-beating 209,000 new jobs were created in March. This was a surprisingly strong figure, which suggests an acceleration of hiring relative to previous months – quite at odds with the depressed business surveys that have been prevailing recently. In terms of caveats, the last two months did see downward revisions, but they weren’t huge. een signs from the latest shunto (annual spring wage negotiations) that companies are willing to countenance higher payments.

U.S. jobs growth was surprisingly strong in March

Source: LSEG Datastream

The unemployment rate rose slightly more than expected, which always seems unintuitive when jobs growth has been strong. This can sometimes be reflective of immigration, although that seems less likely at the moment. Instead, more Americans are entering the job search, which is reflected in a slight recovery in the labour force participation rate.

It’s a little surprising to see these data strengthen. Whilst surveys can be unreliable, particularly at emotional times when there’s a lot of partisanship, there are some distinct reasons for employment to weaken this month that seem incontrovertible; the Department of Government Efficiency (DOGE)’s federal spending cuts, for example.

Whilst it’s difficult to trust the accuracy of the cost-cutting achievements DOGE has published, executive outplacement firm Challenger, Grey and Christmas estimated this week that over 200,000 federal workers had been laid off during March alone. The official data only showed a few thousand job losses, so it may be that the bulk of them appear in next month’s revisions.

Whether accurate or not, President Trump will be emboldened by the apparent strength of the labour market, which will make him a tougher negotiator for trade partners. The good news is that the rise in the unemployment rate, relatively subdued wage growth, and increased labour participation will help make the case that the Federal Reserve should cut interest rates.

(Almost) all that glimmers is gold

Gold sold off on ‘Liberation Day’ as investors took profits, reflecting the fact that bullion is one of a handful of goods that are exempted from tariffs (the others are critical minerals).

The new government is thinking strategically about access to natural resources, and they won’t be the only ones. Central banks have been building up their non-dollar reserve assets in anticipation of a time when requiring a lot of dollars may be less of a priority.

That has been the trend that has pushed gold higher and, aside from the exemption, ‘Liberation Day’ should encourage reserve managers that their diversification strategy is appropriate.

Gold has performed strongly as trade uncertainty has built

Source: LSEG Datastream

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

09/04/2025

Please see below, an article from Tatton Investment Management, discussing the impact of Trump’s Liberation Day and the proposed US Sovereign Wealth Fund. Received this morning – 07/04/2025

Trump’s Liberation Day turns into market rout
Donald Trump’s tariffs upset markets unprepared for their magnitude. The shockingly high “reciprocal” tariffs aren’t a response to “Tariffs charged to the U.S.A” as claimed, but a calculation based on regional trade deficits. This widely panned method is suspiciously similar to the one AI models give when you ask for a simple tariff plan. By some calculations, the new weighted average tariff is 18.5% (versus the expected 15%) due to exemptions – but the sell-off worsened when China retaliated with a 34% tariff on the US. Full-blown trade war between the world’s two largest economies greatly concerned investors. 

Growth forecasts have been downgraded, but prospects depend on how policymakers respond. The hope is it’s an opening gambit in trade negotiations – with the extra “reciprocals” up for debate. Markets are wondering whether Trump is for real or for the deal, but Canada and Mexico’s exemptions suggest the latter. 

The baseline 10% unfortunately looks set to stay, largely because the US government needs the money. That’s especially true if Trump goes ahead with his promised tax cuts. Tax cuts would numb the pain, but probably won’t live up to last year’s market hype – judging by sharply lower US bond yields. Yields have fallen due to growth pessimism but, with Trump preparing for fiscal expansion, US bonds might need a higher yield to attract international investors – so could rise over the medium-term. 

The outlook has worsened, but investors should avoid rash decisions. Markets have ricocheted between complacency and capitulation. That’s usually followed by a steep recovery, as investors recognise that there are factors to dampen the shock. The path to mitigation is clear – negotiations bringing down tariffs – and even Trump has said he’s open to talks. Besides that, the Fed has plenty of firepower and other governments look set to pursue fiscal stimulus. It looks like we’re close to the turning point, but there certainly could be volatility ahead. Once the dust settles – and only then – can we evaluate the long-term opportunities to change asset allocations. 

March 2025 asset returns review
March was a bad end to a volatile quarter: global stock prices fell 6.3% and bonds dropped 0.4%, as investors braced for President Trump’s “Liberation Day” tariffs. US stocks once again performed the worst (down 7.9% in sterling terms) while the dollar continued to slide. Normally, the dollar rises when global growth is under threat – but markets saw tariffs as a bigger risk for the US than elsewhere. 

Looming tariffs still hurt other regions, just not by quite as much. European stocks fell 3% in March – but are up a very decent 7.4% for Q1. The UK followed the same pattern (-2% in March, +6.1% in Q1), despite Spring budget negativity. China was once again the best performer, and now leads returns on a monthly, quarterly, half-yearly and yearly basis – thanks to Beijing’s economic stimulus and tech positivity from DeepSeek.

Bond prices fell, but with significant variation. European yields soared after Germany’s proposed reform of the constitutional debt brake – leading to the biggest single-day yield jump since reunification. Global yields felt the shockwave, but it was dampened in the US, whose yields were only slightly higher through March. That’s because of Trump’s disruptive policies weighing on growth expectations. Yields fell sharply into the end of the month, as investors seemed to prefer the safety of bonds over risk assets. 

Lower risk appetite was also reflected in gold prices. The ‘safe haven’ metal continues to soar, and was accompanied by a fall for Bitcoin. That tends to suggest nervous investors. The reason for these nerves was clear: Trump tariffs imposed at the start of April. Uncertainty around these, combined with portfolio rebalancing into the end of the financial year, led to markets bracing for impact. 

The new US Sovereign Wealth Fund
Trump’s cabinet is finalising its plans for a US sovereign wealth fund (SWF). The president’s executive order to propose one was light on details, but SWFs are generally built out of budget surpluses – and the US runs a hefty deficit. The government will have to get creative with its money, but there are options: land, gold reserves, cryptocurrencies, mineral rights and stakes in private companies. In fact, there are already 21 SWFs belonging to US states, with a combined $300bn AUM. The idea of a federal SWF isn’t new; Biden proposed one, though nothing came of it. 

A Trump-ordered SWF would likely focus on infrastructure, manufacturing and defence – in-keeping with the “America First” policy of winning the tech race and bringing back American manufacturing. A SWF that buys up innovative companies and profits from them could also be a way of giving the fruits of US growth back to its citizens. 

Without strong governance, though, SWFs can devolve into slush funds. Worryingly, the Trump administration has little regard for governance or oversight. The president made millions off of his personal ‘memecoin’ just before entering office, while Elon Musk is overseeing the federal funding that he’s profiting from. 

Some have suggested tariffs could fund the SWF. This idea is implausible (the deficit still needs plugging) but revealing: it suggests Trump’s SWF is more of a political tool – a weapon in Fortress America – than an investment vehicle. 

Global SWFs are increasingly partnering with international funds – so Trump’s SWF could be used in foreign policy. If it comes about, it will probably be a part of Russia talks. The head of Russia’s SWF is now special envoy for investment and cooperation and has said Trump’s presidency “opens up new opportunities for resetting relations”. 

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Marcus Blenkinsop

7^th April 2025