News

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.

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

Chloe

10/06/2025

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

Please see below article received from Brooks Macdonald this morning, which provides a global market update for your perusal.

What has happened

May has got off to a good start for markets. Yesterday saw key equity indices extend their run of back-to-back daily gains, in part down to strong US megacap tech earnings from Microsoft and Meta the day before. While the latest tech results overnight from Amazon and Apple were a bit more mixed, this morning the broader risk-on mood has had a shot in the arm after China said it is evaluating trade talks with the US, with Asian equity markets reacting positively. Finally, in focus later today will be US ‘non-farm payrolls’ jobs data for April where markets are looking for an unchanged +4.2% unemployment rate.

Possible thawing in China-US trade tensions

Earlier today, China’s Commerce Ministry said in a statement that it had noted that “the US has recently sent messages to China through relevant parties, hoping to start talks with China” and that “China is currently evaluating this”. In terms of possible next steps, and as a condition to negotiations, the statement asked to the US to “show its sincerity and be prepared to correct its wrong practices” by scrapping the current reciprocal tariffs.

Key equity indices extend their run of gains

The US S&P500 equity index was up +0.63% yesterday, extending its run of gains to 8 days in a row – that is the longest winning streak since August last year, and leaves the index “only” -1.18% below its 2 April close after which US President Trump’s ‘Liberation Day’ tariffs were announced. Elsewhere, the pan-European STOXX600 and UK FTSE100 equity indices just managed to eke out by the thinnest of margins, another day’s gain (both edging higher by +0.02%). It was marginal though – for example, while the FTSE100 notched up a 14th daily gain in a row, a joint record since the index was formed back in 1984, looking at different indices, the MSCI UK equity index (owing to a different constituent index composition), was actually marginally down on the day. All in local currency, price return terms.

What does Brooks Macdonald think

This morning’s statement from China signals the strongest indication yet that the trade tariff stalemate between the world’s two-biggest economies could get resolved. For context, the positive reaction in markets this morning comes against US-China tariff rates on both sides that are so high currently that they effectively amount to a trade embargo in all but name. It is still very early days, and there are thorny trade issues for both sides to address, but China’s apparent willingness to enter trade negotiations is in itself welcome news.

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

Chloe

02/05/2025

Please see below article received from Tatton this morning, which provides a global market update.

Capital markets bounced last week, supposedly because of Trump backing down on Chinese tariffs and Federal Reserve independence. 

We should be careful about these rationalisations. Greater liquidity led to a better mood in stocks and bonds, and a ‘buy the dip’ mentality from US retail investors. Trump suggesting Chinese tariffs could be lower – and that Fed chair Powell could keep his job – certainly helped, but this isn’t crisis averted. Institutional investors are still nervous, and tariff uncertainty has all but halted business investment. 

The mood benefitted from the public appearances of US treasury secretary Scott Bessent, who sounded much more constructive on trade, tariffs and the Fed. Unfortunately, we don’t know how long Bessent’s time in the sun will last. Trump likes his cabinet to fight for policy influence – exemplified by last week’s shouting match between Bessent and Elon Musk. China also called Trump’s claims of dialogue “fake news”. Beijing might be bluffing when it says they have more stomach for trade war, but the suggestion will anger Trump’s inner circle. Bessent’s ‘adult in the room’ style won out last week, but it might not next time. 

The fact US businesses can’t plan ahead – and hence can’t invest – is a growth negative for the world’s largest economy. US stocks are still more expensive than others in price-to-earnings valuations. That has been sustained for decades by exceptional profits, but the latest earnings reports show that exceptionalism is fading. 

Other regions could pick up some of the investment slack – most notably Europe, which is being forced to invest in its own capacity. And it’s worth noting that calls of a global recession aren’t backed up by the economic data. But the rest of world can’t fully make up for the reduction in US business investment. The growth outlook is therefore weaker than at the start of the year. We shouldn’t be surprised if last week’s positivity is soon tested. 

Tariff recap: what’s here and what’s near?

Trump tariffs are always in the news, but it’s surprisingly difficult to find out which tariffs are actually in place. The table below shows US tariffs currently in effect and those soon expected.

US imports from Mexico and Canada face a 25% import tax – except those covered by the USMCA trade deal Trump signed in 2019. The White House says that USMCA compliant goods account for 50% of Canadian imports and 38% of Mexican imports. Non-USMCA compliant energy and potash imports face a lower 10% tariff.

Trump suspended his “reciprocal” tariffs until 9 July, but the baseline 10% on most countries – and 25% on cars, steel and aluminium – is still in place. China faces a higher 145% rate, despite the president’s softer rhetoric last week. Chinese electronics are currently exempt but probably won’t remain so, and the de minimis rule excluding small orders up to $800 will end on 2 May. 

Looking ahead, the most likely outcome is a patchwork of bilateral trade deals. Despite White House antagonism towards Europe, many expect lower tariffs eventually. China is more complicated, as it’s unclear whether Trump is tactically or ideologically opposed. But trade deals take longer to sign than Trump’s 90 days, so even in the best case scenario we will probably see last-minute unilateral declarations from Washington. 

More tariffs are on the way, like 25% for pharmaceuticals and semiconductors. It’s also possible the US will threaten to tariff China’s trading partners – similar to their plan for Venezuela. Then there is the USMCA renegotiation between the US, Canada and Mexico looming next year. In the meantime, trade experts’ best guess for average US tariffs by the year end is 15-20%. That wouldn’t mean a deep recession, but the fact nobody is sure what will happen doesn’t help. 

Fed independence: it would have been a nice idea

Trump saying he has “no intention” of firing Federal Reserve chair Jerome Powell was a relief for markets, as central banks’ operational independence is a cornerstone of the global financial system. 

The central bank independence movement started in the 1920s, but was put on hold during WWII and the Keynesian macroeconomic consensus that followed. When the consensus collapsed during the 1970s inflation crisis, the role of central banking had shifted from emergency lending to ongoing economic management – which led to banks gaining legal independence from the 1980s. Economists generally think independence has succeeded in giving central banks credibility and taming inflation. 

But independence has always been more an aspiration than a reality. Governments scrutinise central banks, and successful economic policy requires fiscal and monetary coordination. Trump adviser Stephen Miran has argued this coordination means Fed independence isn’t realistic or desirable – but you could argue it means the opposite. Monetary policymakers need to think about the implications of public spending on interest rates, which requires thinking on longer timeframes than short-term election cycles. Fed independence is reminiscent of Gandhi’s famous line, when asked about Western civilisation: “I think it would be a good idea.”

Markets certainly don’t like Trump’s attempts to squash this aspiration. The longer-term impact of Fed’s independence removal would be on bonds. Interestingly, this might actually reduce our preferred measure of government ‘credit risk’ (the difference between government bond yields and Fed-guaranteed interbank swap rates) because it would mean the treasury can directly print money to pay off its debts. The real risk is that the money would become worthless – meaning higher yields. This puts the Fed in a bind. Arguably, Powell should cut interest rates because of weaker US growth, but the uncertain impacts of Trump’s policies on inflation is stopping the Fed from doing so. Hopefully, the White House won’t stop Powell from acting altogether. 

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

Chloe

28/04/2025

Please see below article received from EPIC Investment Partners this afternoon, which provides further input on the effects of Trump’s tariffs.

The Trump administration’s sweeping tariff regime is creating a perfect storm of economic challenges that could fundamentally reshape global finance. With weighted-average import duties soaring from 3% to approximately 25%, the US economy faces an imminent stagflation crisis—one the Federal Reserve appears ill-equipped to counter. 

This economic predicament will likely manifest itself as US inflation is expected – by some commentators- to reach as high as ~5% within the year, driven by both direct import price increases and opportunistic pricing from domestic producers shielded from competition. Simultaneously, economic growth faces severe headwinds as businesses delay investments amidst trading uncertainty and consumers cut spending. 

The economy’s structural capacity is further undermined by aggressive deportation policies and immigration restrictions shrinking the labour force, while productivity growth stalls. These factors could slash sustainable GDP growth from last year’s 2.5-3.0% to a projected anaemic 1.0%.  

The Fed’s traditional toolkit may prove inadequate for this scenario. While Chair Powell has suggested patience on rate hikes if inflation proves temporary, this approach carries substantial risks. Inflation has already exceeded the 2% target for four consecutive years—a fifth year with accelerated price growth could permanently unanchor inflation expectations, potentially requiring drastic intervention reminiscent of Volcker’s 20% fed fund rates in the early-1980s. 

Compounding these domestic challenges, global de-dollarisation could accelerate, particularly if the Fed withholds dollar liquidity during financial stress. While such a move would require an exceptionally high threshold, it could trigger serious global and domestic repercussions. A dollar shortage might initially strengthen the currency but could ultimately destabilise US markets. Though the Fed is independent, political pressure could steer decisions, with swap lines used as leverage. The irony is clear: isolationist policies and tariff threats may end up accelerating the very de-dollarisation they aim to prevent. 

Despite these concerning developments, significant opportunities remain. Countries accelerating de-dollarisation efforts create openings in alternative currency markets, while companies adapting supply chains present investment prospects in emerging manufacturing hubs. Additionally, the volatile environment offers strategic entry points for value investors as market overreactions create mispriced assets across various sectors. 

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

Chloe

08/04/2025

Please see below article received from Brooks Macdonald this morning, which provides a global market update for your perusal.

What has happened

The closing levels in yesterday’s markets disguised some huge intraday swings, highlighting just how febrile the current market sentiment is. As an example of the extreme volatility yesterday, while the US S&P500 equity index closed the day ‘only’ down -0.2%, intraday the index recorded a massive 8.5% intraday swing in local currency price return terms. The catalyst for the huge swing in price action was attributed to a subsequently-proved ‘fake news’ social media post that US President Trump was mulling a 90-day delay to some of his reciprocal tariffs.

A huge intra-day swing in equity markets

A fake news headline that US President Trump was considering a 90-day delay to some of his reciprocal tariffs for countries excluding China sparked a huge rollercoaster move in markets yesterday. The headline appears to have originated from an interview that US National Economic Council Director Kevin Hassett gave on Fox News yesterday, during which he was asked if the US administration would consider a 90-day pause, to which Hassett responded that “I think that the president is going to decide what the president is going to decide.” As a measure of the move, the US S&P500 equity index in local currency price return terms went from a -4.7% drop shortly after the start of trading on Monday, to surge at one point to an intra-day gain of +3.4%, before subsequently unwinding those gains. In percentage terms, the 8.5% swing was the biggest intraday swing in over 5 years for the US S&P500 equity index, since March 2020.

Is Trump still in negotiation mode?

While investors are split on whether US President Trump’s tariffs are a permanent fixture going forwards or just a negotiating tactic, comments from Trump yesterday suggested it might yet still be more the latter potentially. Trump yesterday said that “we have many, many countries that are coming to negotiate deals with us, and there are going to be fair deals”, that “negotiations with other countries [excluding China], which have also requested meetings, will begin taking place immediately”, and later adding that “there can be permanent tariffs and there can also be negotiations because there are things that we need beyond tariffs”. Separately, US Treasury Secretary Scott Bessent yesterday said that “everything is on the table” when asked about the possibility of tariffs being lowered.

What does Brooks Macdonald think

When markets are this volatile, it pays to take a step back from the noise, to try to understand what we do know but perhaps more importantly what we don’t yet know. We know the scale of Trump’s tariffs and we know their planned implementation dates, as well as some retaliatory tariff plans from other countries. However, what we don’t yet know is whether these tariffs will actually end up sticking, and at what rates if at all – as we saw yesterday, even a glimmer of hope that Trump might only delay tariffs saw massive intraday moves in markets. Given Trump’s proclivity for changing his mind, and the range of tariff outcomes that are still “on the table”, it makes sense to stay calm and not to make any rash decisions that one might later regret.

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

Chloe

08/04/2025

Please see below article received from EPIC Investment Partners this morning, which offers a different view on Trump’s tariff announcement.

The tariffs announced on Wednesday far exceeded expectations, including our own. While the scale of the tariffs is a concern, the bigger issue is the absence of a clear strategy to reverse course. The administration aims to reduce the US trade deficit by imposing tariffs based on the size of a country’s trade balance relative to total imports. That formula won’t change significantly unless there is a substantial shift in the relative competitiveness of the two nations. 

Contrary to expectations that tariffs would support the US dollar, the currency weakened sharply against major peers. This reaction may hint at a broader policy direction. One key factor behind the persistent trade deficit is the dollar’s overvaluation, a result of loose fiscal policy combined with tight monetary conditions. Measures like the Big Mac Index highlight this imbalance, with the Japanese yen appearing undervalued by 46% against the dollar. 

Last year, we noted the potential for a modern version of the 1985 Plaza Accord—a coordinated move to weaken the dollar. The dollar’s drop after the latest tariff news brings to mind President Nixon’s 1971 actions. Back then, Nixon imposed a 10% import tariff and ended the dollar’s convertibility to gold, effectively abandoning the Bretton Woods system. His goal was to weaken the dollar to reduce the trade deficit and boost US competitiveness. Though initially disruptive, the strategy eventually succeeded. Today’s policies may reflect a similar intent. 

However, deliberately weakening the dollar brings risks, including higher inflation. That could complicate the Federal Reserve’s policy path, especially if growth slows at the same time. The result could be stagflation—low growth coupled with persistent inflation—making policymaking significantly more challenging. 

For investors, the outlook is increasingly clear: bond yields are likely to fall. Tariffs raise uncertainty and pressure economic growth, increasing demand for safe-haven assets. Long-duration US Treasuries are particularly well-positioned to benefit from falling yields in such an environment. Historical precedent supports this—when growth slows and uncertainty rises, high-quality bonds tend to outperform. 

Investors should also monitor for signs of coordinated international action to weaken the dollar. Although not widely discussed in the mainstream press, there is speculation about a possible Mar-a-Lago summit, where a coordinated devaluation of the dollar could be agreed. This would simultaneously improve US competitiveness and reduce the need for tariffs. Even hints of such moves could ease tensions and restore stability. Until then, markets are likely to experience subdued growth, falling bond yields, and rising volatility. Bond markets have been under pressure in recent years, but the current environment is very supportive of long-duration, high-quality fixed income. 

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

Chloe

04/04/2025