Please see below article received from Brooks Macdonald this morning, which provides a market update for your perusal.
What has happened
A degree of relative calm returned to markets yesterday, as fears of a worst-case Middle East conflagration eased. While Iran and Israel continue to trade attacks, there is a growing view that the latest conflict might yet be contained. Avoiding further escalation, Israel has not targeted Iranian oil production while Iran has not targeted US people or assets in the region – and crucially for the oil price, Iran has as yet shown no interest in blockading the Strait of Hormuz through which close to 30% of the world’s seaborne oil trade goes through.
Signs of Middle East de-escalation?
Rather than ratcheting up, it seems the conflict might even be de-escalating behind the public rhetoric. The Wall Street Journal said yesterday that Iran was signalling it wanted to end hostilities and restart nuclear talks, citing unnamed Middle Eastern and European sources, while a similar report by Reuters said that Iran conveyed that message through Qatar, Saudi Arabia and Oman. Separately, Iranian foreign minister Abbas Araghchi yesterday said that “the Islamic Republic of Iran has never left the negotiating table”. According to US news website Axios, there may be meeting this week between US Middle East envoy Steve Witkoff and the Iranian foreign minister to discuss a nuclear deal and an end to the Israel-Iran conflict.
Markets shift back to risk-on
Global equity markets rose, while US government bond, gold and oil prices all fell back yesterday. The US S&P500 equity index finished yesterday up +0.94%, recouping most of Friday’s -1.13% decline, while the pan-European STOXX600 equity index was up +0.36%, having dropped by -0.89% on Friday. Overnight in Asian equity markets, the Japanese Nikkei225 equity index has closed up +0.59% (all equity indices in local currency price return terms).
What does Brooks Macdonald think
Overnight the Bank of Japan has left interest rates unchanged and announced it is looking the slow the rate at which it reduces its bond purchases next year, both decisions widely expected. On the latter, the Bank is presumably hoping to take some of the heat off Japanese government bond yields which have risen this year. This is all market positive as it reduces the risk of ‘something breaking’, avoiding a redux of the market hiatus last August when the Bank hiked rates unexpectedly.
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Please see below, an article from Tatton Investment Management analysing the key factors currently affecting global investment markets. Received this morning – 16/06/2025:
Markets calm but not comfortable
Markets’ reaction to the war that broke out Friday, after Israel’s strike on Iran, has been mild. Global stocks have fallen slightly, while gold prices and the dollar have edged up. Oil prices climbed the most – and their future inflationary impact is probably why bonds fell as yields rebounded. Investors have become a little desensitised to geopolitical mayhem. You might call that resilience; you might call it resignation. In any case, we have said for a while that investors (particularly in the US) might be overly optimistic.
On the UK spending review, it was notable that Chancellor Reeves stuck to her fiscal rules, even though she probably would have got away with tweaking them. Bond yields fell, sterling strengthened and the FTSE 100 gained in response – a reaction any party’s chancellor would welcome. Despite weak growth, the UK has an opportunity to take advantage of US capital outflows – but our markets have a trading liquidity problem, which we’ll write more on soon.
US stocks held up decently, despite weaker earnings and lower than expected inflation. Trump will take that as tariff vindication, but really it suggests economic weakness. It means companies will struggle with higher input costs. Stocks can still grow in that sluggish environment (they did before the pandemic) but we shouldn’t expect the stellar returns of the last few years.
The other concern is that slower profit growth means higher equity valuations – which already look expensive compared to higher bond yields. There are reasons to doubt the bond valuation effect: there are more bonds than there used to be (see below) and they’re not easily substitutable for stocks. But eventually, higher bond yields make equities more vulnerable, either because companies need to raise capital (see Eutelsat) or sharply higher yields make everyone afraid. High yields are a big problem for equities if investors expect a recession. That’s a risk, but hasn’t happened yet.
Governments borrow more but could pay less
Markets are worried about government debt sustainability. We call government bonds ‘risk free’ because they can theoretically print money to pay back the loan (assuming they borrow in their own currency) but they are still risky by the usual understanding. We measure these risks in two ways: the term premium (long versus short-term yields) and swap spread (government yields minus central bank guaranteed interbank lending). Both measures have increased across most major economies, for a simple reason: government debt has grown much faster than private debt in the last decade.
That means governments are demanding more capital than companies. Or inversely, the private sector is deleveraging, relatively speaking, with corporates eating less of the capital pie. Corporates have also been issuing less equity for an unusually long time – despite the fact investors are happy to buy that equity. There are a couple of ways of looking at this. A Keynesian would say governments are making up for the shortfall in private sector credit demand; a supply-side economist would say governments are crowding out private investment by making borrowing rates too high to be profitable. The truth is probably somewhere in between.
Even a slight crowding out of investment could constrain long-term growth – depending on your beliefs about the efficiency of public versus private spending. Japan is arguably a cautionary tale here: its debt-to-GDP ratio is higher than any other large economy, plausibly one of the factors behind its decades of stagnation. China might be on that same path, with massive government debt expansion in the last decade and a weak private sector to show for it.
The interesting thing about these examples is that they show how higher government debt can actually mean lower yields – by lowering growth. That’s the opposite of what people usually worry about when they worry about growing government debt.
China exporting disinflation to Europe
Many expect US tariffs on China will mean Chinese exports being rerouted to Europe – and hence lower European goods inflation. This isn’t happening yet, but Americans’ rush to buy ahead of tariffs is distorting the data. Chinese exporters have room to grow their European consumer share, but JPMorgan analysts point out that changing market shares don’t affect official inflation statistics in the short-term. Europeans buying more Huawei and less Apple only lowers inflation if Huawei prices fall. JPM see the bigger short-term impact coming from the euro’s 7% appreciation against the renminbi. But even this currency impact is relatively small.
Changing market shares eventually impact inflation by changing the weightings of different goods. That could take a while, though, and it would require a consistent shift towards buying Chinese. This could be difficult, because European politicians are already worried about Chinese ‘dumping’ of electric cars. There’s nothing sinister about China selling cheap goods after overproducing, but ‘dumping’ is a politically persuasive story. German carmakers and British steel producers have already lobbied for import controls on this basis, and politicians will get more sympathetic the more China exports.
That’s good news for Washington, which wants European anti-China tariffs to be included in any US-EU deal (and successfully put them in the UK-US deal). European leaders have been reluctant to go along with the US trade war on China in the past, but the difference now is that domestic European pressures could push them in the same direction.
We think it’s likely, therefore, that the EU will put up some trade barriers with China – albeit not the 145% tariffs Trump likes to post on social media. Potential EU tariffs will probably be more commensurate with the scale of Chinese ‘dumping’, which is likely why bond markets aren’t expecting significant European disinflation.
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Please see the below article from EPIC Investment Partners detailing their discussions on a tightening Labour Market. Received this morning 13/06/2025.
Over the past few weeks, we have focussed closely on the jobs market. Why so much attention? With inflation moving towards the Federal Reserve’s target, any further easing will increasingly depend on clear signs of labour market weakness. While recent payroll data and a stable unemployment rate appear reassuring, the underlying reality is notably different.
The Bureau of Labor Statistics (BLS) employment report for May 2025 illustrates why headline figures can be misleading. The report indicated a modest payroll gain of 139,000 jobs; however, a closer look reveals a much weaker picture. Strikingly, total employment measured by the Household Survey fell sharply by 696,000. This is not simply a statistical anomaly—it may signal a hidden deterioration in the labour market.
Each month, the BLS produces two employment measures from separate surveys. The Establishment Survey provides the headline payroll figure, counting each job on employer payrolls separately—even multiple jobs held by one person. This approach can inflate perceptions of strength. In contrast, the Household Survey directly interviews individuals, counting each person as employed only once, while including self-employed and agricultural workers who are not captured by payroll figures.
In May, payroll jobs rose slightly by 139,000 to 159.6 million, yet the Household Survey reported total employment fell by 696,000, dropping to 163.3 million. This divergence is largely because around 625,000 people exited the labour force entirely—they were not merely unemployed; they stopped looking for work altogether. This coincided with an additional 813,000 people categorised as “not in the labour force,” including retirees, students, those with family responsibilities, and discouraged jobseekers.
As a result, the labour force participation rate fell 0.2 percentage points to 62.4%. When the working-age population grows (as it did by 188,000 in May), yet fewer people actively engage in employment, deeper structural issues emerge. The headline unemployment rate remaining steady at 4.2% masks this underlying weakness, as it excludes individuals who have stopped actively seeking employment.
Moreover, the strength in payroll data may be overstated by the BLS’s Birth/Death Model, which estimates jobs created or lost by businesses not yet captured in surveys. This model relies on historical data, potentially problematic in a rapidly shifting economy. Recent downward revisions (totalling 95,000 fewer jobs in March and April) reinforce this concern, indicating that payroll growth may have been previously overstated, making the current divergence even more significant.
Investors should not rely solely on headline payroll numbers. May’s employment report clearly demonstrates that headline strength can mask genuine underlying weakness. Declining total employment and increased workforce exits point to structural challenges potentially limiting future economic growth and productivity. Investors should therefore adopt a cautious perspective, acknowledging the employment landscape may be weaker and more vulnerable than initial headlines suggest.
For the Federal Reserve, which targets maximum employment and stable 2% inflation, these nuances are critical. While typically prioritising payroll figures, the Fed will also closely monitor labour force participation and overall employment levels. If underlying employment continues to weaken, this could prompt policymakers to adopt a more accommodative stance sooner rather than later. So, despite the positive headlines citing payroll growth, the Fed may in fact be much closer to resuming its easing cycle than many currently assume.
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Please see below, todays Daily Investment Bulletin from Brooks Macdonald covering their thoughts on the overnight events in the Middle East:
What has happened
Markets have been rocked overnight by fresh Middle East geopolitical risk, with Israel launching air strikes on Iran’s nuclear and ballistic missile programme sites, and warning of more action to follow. Iran has already retaliated, sending drones into Israel and vowing further reprisals. With renewed fears of Middle East conflict emerging earlier this week alongside risks of a wider Middle East conflict, that has pushed the oil price higher – at one point overnight Brent crude US dollar oil prices were up around +13%, peaking at US$78.50 per barrel – for context, that marked a gain of around +20% from where prices were at the start of June at under $65 per barrel – at the current time, the Brent crude oil price has pulled back some of its latest move, and is currently trading up at around US$73 per barrel, up around +5% on the day.
Israel’s strike on Iran
As we said in our Daily Investment Bulletin only yesterday, with US President Trump growing less confident around the prospects of limiting Iran’s nuclear programme through talks, reading between the lines it suggested a higher risk of military action instead. The US overnight has claimed that Israel acted without US involvement or assistance – however, according to Israeli public broadcasts, Israeli officials notified the US before beginning the strikes. The United Nations atomic watchdog (the International Atomic Energy Agency) has said there are no signs of increased radiation at Iran’s main nuclear enrichment site, Natanz in central Iran – while there are reports that a number of Iran’s high-ranking military officials and nuclear scientists have been killed.
Market reaction
Unsurprisingly, markets are reacting in a risk-off move this morning, with equity markets lower, and safe havens, including US Treasuries, the US dollar currency and gold prices all higher earlier. For the UK FTSE100 equity index, the falls this morning appear to be limited, largely due to gains in oil major heavyweight stocks BP and Shell this morning following the higher oil price moves overnight. Prior to the events overnight out of the Middle East, yesterday had seen equity markets put in a solid session, with US equity indices up on the back of a weaker-than-expected US Producer Price Index (PPI) inflation report, echoing the weaker US Consumer Price Index (CPI) inflation data the previous day.
What does Brooks Macdonald think
Keep the latest oil price moves in context. Back in January, Brent crude oil prices were even higher, at over US$82 per barrel at one point mid-January. So far this year, for the most part, oil prices have been in a downward price-channel, as markets have reacted to increased oil supply from OPEC+ (Organization of the Petroleum Exporting Countries plus non-OPEC members including Russia), who have been continuing to reduce post COVID pandemic supply curbs, alongside broader economic growth concerns amid global trade tariff uncertainty. If history is a guide, conflict-driven higher oil prices usually subside as wider economic and supply/demand fundamentals reassert themselves – nonetheless, there will likely be unwelcome oil price volatility in the interim.
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Please see below, an article from EPIC Investment Partners providing a brief analysis of the UK economy following the recent GDP data release. Received today – 12/06/2025
The UK economy is exhibiting increasing signs of strain, with multiple indicators pointing to a marked downturn. The labour market, a key barometer of economic health, is under growing pressure. According to the Office for National Statistics (ONS), the unemployment rate has climbed to 4.6%, the highest level in four years, accompanied by weakening wage growth and significant job losses across critical sectors.
This uptick in unemployment follows April’s policy changes, including an increase in payroll taxes and the national minimum wage, part of Chancellor Rachel Reeves’ latest Budget. Wage growth has also faltered, with average weekly earnings (excluding bonuses) rising just 5.2%, below expectations and down from 5.5% previously. Growth in private sector pay has been particularly subdued, with recent public sector pay deals providing only modest support.
At the same time, consumer spending is showing signs of fatigue. Retail sales growth in May slowed to just 1%yoy, the weakest pace of 2025 and well below both the year-to-date average of 2.5% and April’s inflation rate of 3.4%, indicating a decline in real-term spending. According to the British Retail Consortium (BRC), lower consumer confidence is leading shoppers to cut back on discretionary purchases, particularly fashion and high-ticket items. While food sales remained resilient, the broader retail picture is increasingly fragile.
Financial markets responded, sterling fell against the dollar, while expectations for a Bank of England interest rate cut shifted to September (from November).
Attention now turns to Chancellor Reeves’ Spending Review later today, where a credible response to these gathering challenges will be closely scrutinised.
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Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 10/06/2025.
Markets calm despite ongoing trade uncertainty
Recent events have fostered a surprising lack of market movement, despite ongoing trade tensions.
Source: LSEG Datastream
As we enter the summer period, it’s worth reflecting on what a hectic year this has been for markets. But more recently, there’s been a period of unusual calm. This isn’t a period of calm in which markets rally, we’ve essentially already experienced that. This has been a period in which markets have actually done very little.
There’s normally some kind of rotation taking place between sectors and styles at all times, but for the second half of May, the markets entered a bit of a holding pattern.
The calm began following the relief rally sparked by the deferral of the ‘Liberation Day’ tariffs and coincided with the de-escalation of mutual tariffs between the U.S. and China. Those events gave rise to the markets’ new favourite acronym TACO − Trump Always Chickens Out.
During this period of calm there has been plenty of news to potentially rock markets. The Trump administration has been stressing the challenges of reaching an agreement with China. It’s also trying to pass a bill that will allow it to impose taxes on foreign investments if other countries impose unfair taxes on the U.S. That bill, at least ostensibly, has been the cause of infighting within the president’s former inner circle. It’s been largely ignored by the equity market but has been causing anxiety for bond investors due to the bond issuance it would promise in the future. All the while the TACO accusation was brought to President Trump’s attention and this could prompt him to push back against it.
So, there’s been plenty to potentially worry the market over the last few weeks, but it has managed to cope with that anxiety for now. We can’t be sure why that is, but an obvious potential catalyst is the end of the deferral of those ‘Liberation Day’ tariffs, now just a month away.
Source: LSEG Datastream
The de-escalation of trade talks doesn’t discourage the trend of central banks adding to their reserves of gold, which is likely to be a long and slow-moving phenomenon. However, gold has risen whenever trade fears have escalated and has slid back as they ease. This can be seen in the ratio of gold to other metals, most notably precious ones like silver.
The ratio of gold to silver has been rising over time because silver doesn’t have such an acute restriction on supply that gold does – for this reason, silver has tended to be a poor man’s gold in an investment sense. However, currently silver supply is quite limited, making it seem like an attractive metal in its own right. Therefore, with the ratio of gold to silver stretched by recent trade anxiety, there’s scope for a recovery in silver prices, which took effect last week.
Beyond this correction in the ratio, precious metals, in particular gold, should benefit from America’s abdication of its role of reserve currency as well as concerns over the expanding U.S. fiscal deficit.
The euro rally, despite falling relative interest rates, echoes previous market responses to political developments
The ECB has cut interest rates by 25 basis points, bringing the deposit rate down to 2%. Despite this, the ECB’s policy rate is now considered broadly neutral, and future rate decisions will depend on the evolution of the trade backdrop. The ECB has maintained its gross domestic product (GDP) forecast for the year but expects growth to slow down in subsequent quarters due to trade policy uncertainty.
The ECB’s stance is data-dependent, and it is open-minded about the direction of its next rate move. The labour market is tight, with low unemployment and moderating wage growth. Loan demand is picking up, and monetary policy is no longer considered restrictive. The deposit rate is now broadly neutral, and markets are pricing in one more rate cut this year.
The implications for investors are that the euro is likely to appreciate over the longer term, despite current bond yield spreads moving against it. The euro has been creeping higher, and some investors are questioning whether it can break out to higher levels. However, extraordinary developments such as the Trump administration’s policies can justify deviations from relative interest rate fundamentals. This happened before when the euro rallied due to populist governments failing to win European elections before it eventually fell again due to the victory by the Five Star Movement in Italy.
Longer-term, the path of least resistance for the euro appears to be up, driven by higher inflation in the U.S. compared to the Eurozone and a cheap currency relative to estimates of purchasing power parity. If Europe can avoid being at the centre of another crisis, it seems reasonable to believe that the euro rally has further to go.
Overall, investors should keep a close eye on the trade backdrop and the ECB’s policy decisions, as these will have a significant impact on the euro’s trajectory.
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Please see below article received from M&G Wealth yesterday afternoon, which provides an insight into market movements and the broader economic landscape.
This week’s highlights
Markets rise despite mixed economic data: stocks and bonds gained over the week.
US-China trade talks offer optimism: S&P 500 now up 20% from April lows.
Tesla tumbles: a heated exchange between President Trump and Elon Musk unsettled investors.
Market review
Early in the week, US economic reports pointed to challenges in manufacturing and services sectors. The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) fell, signalling contraction for the third consecutive month and ISM Services PMI had its first decline in nearly a year.
The US labour market showed mixed signals. Job openings exceeded expectations at 7.4 million. However, a recent employment report showed a slowdown, with only 37,000 new jobs added in May – the lowest since March 2023.
US President Trump and China’s President Xi held a phone conversation aiming to ease tensions. While details on trade negotiations remained unclear, markets responded positively, with the S&P 500 briefly entering a bull market – up 20% from April lows.
However, momentum slowed later in the week following an exchange of sharp words between President Trump and Tesla CEO Elon Musk. Their disagreements ranged from recent spending legislation, past political ties and concerns over government contracts. Tesla shares fell 14.26% on Thursday.
Outlook
The economic environment has been resilient so far. The recent stumbling blocks posed to tariff implementation on the scale initially laid out, have offered a temporary reprieve for world leaders and policymakers. We expect markets to remain volatile as the legality of Trump’s tariffs moves into the spotlight, meaning nations may pause or pivot on their efforts to strike trade deals with the US.
Chart of the week
ECB reduces interest rates The European Central Bank (ECB) has reduced interest rates again, bringing the deposit rate down from 2.25% to 2%. This marks a significant shift, as rates have now been cut by half since their peak in September 2023.
The decision comes in response to declining inflation in the eurozone, which fell to 1.9% last month – below the ECB’s 2% target. Additionally, the central bank adjusted its inflation forecasts, lowering projections for 2025 and 2026 to 2% and 1.6%, respectively.
ECB President Christine Lagarde highlighted concerns about ongoing tariff uncertainty and its potential impact on economic growth, reinforcing the need for rate cuts. However, she also suggested that the ECB is nearing the end of its rate-cutting cycle.
What this means for you
Varying inflation levels and trade tariff uncertainty continues to influence market performance across the globe, strengthening the importance of maintaining a well-diversified long-term investment approach, rather than reacting to short-term market swings. By staying committed to carefully considered plans, investors can navigate through periods of volatility and uncertainty.
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Please see below, an article from Tatton Investment Management analysing the key factors currently affecting global investment markets. Received today – 09/06/2025
Summer starts with less spring
Global stock markets edged close to all-time highs, but the Trump-Musk spat knocked Tesla shares – though thankfully not much else. The bust-up is probably less important than the week’s other political news: the UK Defence Review suggests tax rises, the Germany-US meeting went well, and US-China negotiations trundled along.
Stock prices were helped by lower bond yields – even though these came from weaker growth. The US’ non-farm payrolls (US jobs figures) came in relatively strong, but other US employment data look weak. We said before that companies were neither hiring nor firing – but the latter part is now threatened. The Federal Reserve will be watching the employment data closely, and markets now expect two rate cuts by the year’s end. Soft data didn’t spook equity investors, though, as it was only mild and bond yields have been the bigger concern lately.
German and French bond yields actually spiked this week – despite the ECB cutting rates. This was because ECB president Lagarde said the rate cutting cycle is nearly over, which markets took as hawkish on rates but fairly bullish on European growth. The euro rallied, as did sterling. Part of this is dollar weakness, but we should recognise UK and European strength (the best performing stock markets this year).
Dollar weakness is a concern for US assets. Capital has flowed out of the world’s biggest market this year due to higher risks. For international investors, the dollar is one of those risks. The S&P 500 is still firmly negative year-to-date for British and European investors, for example.
Risk-reward metrics (like Sharpe ratios) have shifted, leading non-US institutional investors to reallocate away from the US – as we said they would. These trends can reinforce themselves: capital outflows weaken the dollar, which increases currency risk, which, at the margin, forces more allocation away from US assets. Currency moves will be crucial to watch from here.
May asset returns review
May was good to global investors, with global stocks up 4.7% in sterling terms and all major regions in the black. Equity investors feasted on the so-called “TACO trade” (Trump Always Chickens Out) and Donald Trump’s promised tax cuts. The US was May’s best performer, up 5.3%, largely thanks to its tech sector gaining 8.6%.
US tax cuts led to debt fears in bond markets, however. This drove US treasury yields up substantially through the month, which caused a stock market wobble mid-month. Thankfully, the government bond sell-off didn’t crank up corporate borrowing costs (thanks to low issuance of corporate bonds), and better-than-expected data helped equities quickly recover.
UK government bonds were particularly hurt by higher US yields, losing 1.2% in May. Downing Street’s fiscal discipline message isn’t affecting its borrowing costs (which remain at the mercy of the US) but is arguably helping sterling strength. UK stocks rallied 3.8% last month and are behind only China over the last 12 months. The euro also strengthened against the dollar, a sign that the US-to-EU capital flow continues. Germany’s fiscal expansion is seen as positive – as it has much more room to issue debt – and Europe is the best performer year-to-date, up 12.8%.
China was the weakest region (+2.1%) in May but is still the strongest over 12 months, despite tariff threats and the government’s inability to properly stimulate its weak economy. Commodities were the worst performers but were still positive overall – up 0.6%. We take this as a sign of market liquidity and risk appetite, evidenced by the pullback in gold prices (which go up when investors are fearful).
The return of liquidity and risk appetite was May’s defining characteristic. Trouble bubbles away under the surface, impacting bonds and capital flow out of the US. But for now, investors seem happy to let them slide.
Earnings analysts are as uncertain as everyone else
American companies’ Q1 earnings were good, but strength was yet again focussed on the Magnificent Seven (Mag7 – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla). The Mag7 posted 30.2% year-on-year growth versus 8% for the other S&P 500 companies, and smaller companies struggled. Even the Mag7 has become more of a Mag6, with Tesla’s profits falling a miserable 40% year-on-year (and that’s before any of the Trump-Musk threats).
The Mag7 delivered some of the best surprises too – with Amazon, Alphabet and Meta beating earnings estimates. The communication services sector (including Alpabet and Meta) is now the only one with projected 2025 earnings higher than at the start of the year.
Corporate earnings expectations have been hit this year, falling 1% from January to April and another 2% after “Liberation Day” tariffs. Normally, positive earnings surprises like those seen for Q1 would push up future earnings projections – since companies are building from a higher base. But while the Mag7’s beat cranked up Q2 expectations, earnings beyond that are largely unchanged. This is, again, about tariffs. Apple has been particularly threatened by the White House, for example, and was one of the Mag7’s weaker earners.
Earnings analysts basing their projections on macroeconomic policy predictions is a little problematic. It’s a top-down approach, when earnings estimates are supposed to be bottom-up. It could certainly be positive for stocks: if companies are more resilient than expected or the TACO narrative prevails, earnings surprises would likely spur a rally. But you would always rather have precise earnings estimates. They are what stock valuations are based on, impacting investment decisions.
In other words, if analysts are influenced by the prevailing market narrative more than company specifics, it increases the chance that stock markets themselves are mispriced. This mispricing might work out for the best, but reliable information is better than unreliable information.
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Please see below, Brooks Macdonald’s Daily Investment Bulletin which highlights the key factors currently impacting global investment markets. Received today – 06/06/2025
What has happened?
Equity markets struggled for direction yesterday with positive and negative news flow creating a tug-of-war for investors. While market sentiment got a boost from a positive read-out of a telephone call between US and China Presidents Trump and Xi, against this there was an unexpected rise in weekly US initial jobless claims, hitting a 7-month high. Adding to downside pressure on markets, while the European Central Bank yesterday cut interest rates as expected, unexpectedly it laced the move with hawkish commentary saying that it was “nearly concluded” with the rate-cutting cycle. Later today, all eyes are on the latest (May) US non-farm payrolls employment data, due out at 1.30pm UK time – a Reuters survey of economists is looking for +130,000 jobs added in May, which if that is the number would be the smallest gain in 3 months.
Musk and Trump have a very public falling-out
A dramatic falling-out played out over social media yesterday between the world’s richest man Elon Musk and US President Trump. Musk’s Tesla share price plummeted -14% on Thursday, while Trump’s social media platform share price (Trump Media and Technology) dropped -8%. Trump said he was “disappointed” by Musk’s criticism of Trump’s tax and spending cut bill, while Musk said Trump would have lost the election without his support and responded “yes” to a suggestion that Trump should be impeached. Following Trump’s threat to “terminate” Musk’s companies’ government contracts, Musk has since signalled he might be open to a cooling-off period in his war of words with Trump.
ONS reporting error weakens confidence in UK economic data
The UK Office for National Statistics (ONS) yesterday admitted that Consumer Price Index (CPI) inflation data for April was overstated. The error arose from Department of Transport data where the number of vehicles subject to tax in the first year of registration was too high. It means that the annual all-items CPI reading for April should have been +3.4%, and not +3.5% as was previously reported. Nonetheless, the correct figure of +3.4% was still higher than the +3.3% that had been expected at the time and was still sharply higher versus the +2.6% reported in March. Despite the error, the ONS said it would not be revising the official published (now incorrect) figure. The next (May) monthly CPI print from the ONS is due out Wednesday 18 June.
What does Brooks Macdonald think?
Economic data quality is crucial. It is hard enough for businesses, consumers and investors to discern the economic outlook, let alone if the quality of the data cannot be trusted. This is not the first time the ONS has had data issues, but it is not a UK-only phenomenon – the US Bureau of Labour Statistics (BLS) announced only this week that it had “suspended CPI data collection entirely” in parts of Nebraska, Utah, and New York, due to government cutbacks resulting in fewer people and resources available to do all the statistical work necessary – in BLS parlance, it said that “current resources can no longer support the collection effort”. All in all, question marks around economic data quality and reliability add an unwelcome layer of uncertainty for investors to have to navigate.
Bloomberg as at 06/06/2025. TR denotes Net Total Return.
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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.
Bloomberg as at 05/06/2025. TR denotes Net Total Return.
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