Please see below the daily update article from EPIC Investment Partners, received this morning – 15/10/2025
Trade tensions remain elevated ahead of the planned meeting between President Trump and President Xi Jinping early next week. Toe to toe negotiations can be expected.
An interesting article from Goldman Sachs’ economists, recently published, is worthy of note. Elsie Peng and David Mericle suggest that the vast majority of tariffs increases will be borne by Americans, perhaps three quarters. Consumers are estimated to shoulder 55% of tariff costs while American business absorb a further 22%.
The pair estimate that foreign exporters would absorb just 18% of tariff costs by cutting pricing while 5% of tariffs will be evaded by one means or another.
Last year the United States was China’s largest export market accounting for roughly 15% of total exports but exports have fallen sharply this year. This has been more than offset by higher Chinese exports to other markets, especially the Global South.
Following the Irish famine of 1845, the following year Conservative Prime Minister Robert Peel, assisted by the Liberal Party, abolished high tariffs on imported grain which had protected British landowners.
This ended protectionism and ushered in an era of free trade which Britain, unchallenged on the seas, took full advantage of.
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Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 15/07/2025.
Global trade wars and UK growth concerns
U.S. market rallies amid global trade tensions and UK growth concerns.
Key highlights
Breaking new ground: The U.S. stock market has soared over 25% since 8 April, fuelled by President Trump’s tariff deferral, but uncertainty looms with new tariff plans.
Global trade tensions: Tariffs on Brazil, Canada, and copper imports highlight escalating trade tensions, raising costs for key industries and straining international relations.
Economic ripples: Weak UK GDP growth add to the clamour for lower interest rates in the UK, that in turn would be helpful for the public finances.
Market highs amid trade turmoil
The U.S. stock market has risen by over 25% since 8 April, reaching a new all-time high. The rally began when President Trump announced a deferral of the tariffs he had introduced on 2 April. However, the significance of this move seems to have been lost on President Trump, who remarked that he thinks the tariffs have been well received and noted the stock market’s record high.
These comments came in an interview with NBC, during which he floated the idea of imposing 15% or 20% blanket tariffs on “all the remaining countries.” It’s unclear which countries he was referring to. Some media outlets have speculated that he means replacing the baseline 10% rate with a higher rate of 15% to 20%. However, it seems more likely that he means those countries who had deferred tariff rates but haven’t received a letter. The latter explanation seems more plausible, as the Trump administration seems to have reached far fewer trade agreements than it had expected during the 90-day deferral period. Instead, most countries are expected to receive letters, some of which were sent out early last week.
However, by the start of this week, the majority of countries have neither received a letter nor reached a deal, and the 90-day deferral period has now expired.
Last week, additional punitive tariffs were announced on Canada and Mexico, with goods not already covered by the United States-Mexico-Canada Agreement (USMCA) now subject to 35% or 30% tariffs respectively.
Brazil attracted the president’s ire for pursuing a conviction against former President Bolsonaro. President Trump described the charges as a “witch hunt” and responded by imposing a 50% tariff on Brazil. Additionally, several other countries have received individual tariff letters. In most cases, these tariffs are close to the previous individual rates, although those rates were only in effect for a matter of hours before being deferred for 90 days.
The European Union continues to try and find a deal, but if it’s unsuccessful, President Trump announced that it would face a 30% tariff, an unusual 10%-point increase on the ‘Liberation Day’ rate.
The president has also begun announcing the results of sector-specific tariffs, including a 50% tariff on copper imports. The U.S. currently imports roughly half the copper it needs, as domestic production has been declining. While the tariff could help to reverse that trend, it can take between five and ten years to bring a copper mine from conception to production. In the meantime, the copper import tax is expected to increase costs for U.S. industries such as construction, electronics, automobiles, renewable energy and data centres. The impact of this policy was immediately seen in the diverging price of copper in London and Chicago trading venues. Previously, the two prices were virtually identical, but since President Trump began discussing the possibility of a copper tariff, the two prices have diverged by 25%. While the gap should arguably be 50%, transportation costs for moving copper between markets account for part of the difference.
Copper prices have diverged between London and COMEX
Source: Bloomberg
Whether industry lobbying will be enough for the president to walk back these tariffs, as he has done several times this year, remains to be seen. This is certainly the expectation of the pharmaceutical industry, which has been threatened with a 200% tariff. The tariff is set to be introduced after a grace period of about a year to allow companies to shift their manufacturing to the U.S. However, there’s no way this will result in a meaningful increase in domestic drug manufacturing before it effectively triples drugs prices − an especially contentious issue at a time when the cost of medication is a major concern for voters.
The president, buoyed by calmer markets, appears emboldened to return to the policies which triggered market sell-offs in the first place. He may also have been influenced by criticism of the policies from other billionaires such as JPMorgan Chase CEO Jamie Dimon, who recently expressed concerns about market complacency regarding tariffs during an appearance on Fox News. Obviously, those investors who panicked last time will be wary of doing so again. The risks of getting whipsawed when the market is being driven by the president’s erratic decision making add yet another factor to an already complicated situation.
However, President Trump himself has pushed back against claims of erratic policymaking. Last week, he remarked “We don’t change very much and every time we put out a statement, they say he ‘made a change’… I didn’t make a change, [a] clarification maybe.”
UK starts to feel tax pressures
Source: LSEG
UK gross domestic product (GDP) data released this morning revealed that the economy contracted again in May, defying forecaster expectations of a rebound following April’s decline. UK GDP has been buffeted by a few forces. Tax increases in April, including a rise in National Insurance, contributed to the contraction, and will likely have a lasting impact. An effective increase in stamp duty pulled some housing transactions forward into the first quarter, while exports to the U.S. were also brought forward to get ahead of tariffs.
The UK economy has been slow to recover its momentum. June should be better, though, with positive momentum rebuilding in trade after the earlier shocks this year. Nonetheless, weak growth makes an August interest rate cut increasingly likely. Lower interest rates would be very welcome, as they play a large role in determining whether the public finances stay within the chancellor’s fiscal rules, or whether tax increases are needed this autumn.
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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 – 14/07/2025
Trump turns nasty; markets turn nice
Markets were on summer holidays last week: volatility dropped and stocks broke all-time highs in local currency terms, thanks to abundant liquidity. However, nasty Trump is back and markets frayed a little as the negotiating tactic of increased tariff pressure played out. As we start this week, Europe and Mexico are under the cosh, as Trump threatens a 30% blanket rate in addition to unchanged sectoral rates. Economic Advisor Hassett told us that the US President sees current EU concessions as insufficient. The EU’s pause in imposing countermeasures may suggest faster progress but the German DAX40 futures were down about 1% as the week’s trading opened. The Euro edged lower against the US dollar by 0.25%.
Last week in the UK, the FTSE 100 broke another all-time high, but the media narrative was about inevitable tax rises. Without underplaying these, some of the rumoured figures (£20bn in hikes) look implausibly high. But a CGT hike is likely, which could cause some pre-emptive asset selling. But the impact on UK stocks will be limited by the fact that Britons don’t own much of their own market. UK bond investors will likely welcome a tax hike, ensuring fiscal discipline, lower growth, and hence lower interest rates (another expected next month). That’s hardly a rosy outlook, but it’s a stable one.
US monetary policy looks less stable, with rumours that Fed chair Powell could be ousted for the more Trump-friendly Kevin Hassett. Those rumours lowered US interest rate expectations, steepening the yield curve, due to both lower near-term rates expectations and higher long-term inflation expectations. Our preferred measure of government ‘credit risk’ moved up – not just for the US but everywhere. That bond move would normally hurt stocks, but investors instead saw it as a growth positive. Optimism was helped by improved US company earnings.
Optimism is also helped by abundant liquidity. CrossBorder Capital point out that the US treasury has injected around $400bn into the financial system in the last six months – via the reduction of its Treasury General Account (TGA). The TGA has fallen even lower than the pre-pandemic trend, partly due to US debt ceiling constraints. But US congress has just raised the ceiling and passed new tax cuts. Compared to the recent months, that will mean a less supportive liquidity flow from the US Treasury.
Investors might therefore be less optimistic. But at the same time, analyst upgrades to company earnings estimates show there is hard data to back up the positivity. We just hope growth signals are enough to support markets when they are less liquid.
Markets doubt copper tariffs
Donald Trump’s surprise 50% copper tariff sent US prices for the metal to record highs last week. The president announced the levy in an off-hand remark, but Treasury Secretary Howard Lutnick reiterated that it would take effect next month – and the episode sent US copper prices 17% higher in a single day. London’s copper futures came down (reflecting a loss of US demand) and the difference between the two rose to an astounding 25%. The fact the premium is less than 50% suggests that markets don’t believe the US – which imports around half of its copper – will totally follow through. The fact other markets didn’t react suggests copper prices could come down even more if and when Trump backs off.
The simple reason markets don’t buy it is because a 50% copper tariff would be extreme self-sabotage. Trump wants to build American industry and win the high-tech race with China – but those things need copper. Ironically, the smelters and refineries needed to expand the US copper industry need the raw metal too. Trump is no stranger to self-sabotage, of course, but the “TACO trade” would suggest that the threat of genuine economic harm will make the president relent.
If that logic doesn’t prevail, things could get nasty. Most tariffs are regarded as one-off cost shocks, but copper demand is structural – and a price hike now could have multiplier effects down the production chain. The threat alone has pushed up US copper prices in the short-term, and adds to the general sense that Trump is back to his disruptive ways, after a period of relative calm for markets.
It will be crucial to watch how this affects other tariffs. The optimistic view is that a blowback on copper weakens Trump’s hand elsewhere; the pessimistic view is that ‘nasty Trump’ is back.
Will China address its overproduction? Chinese producer price inflation (PPI) declined 3.6% year-on-year in June, a stark reminder of China’s deflation problems. Hopes that Beijing will respond with extra demand stimulus buoyed its markets on Friday, but nothing concrete has come through yet.
US tariffs don’t help Chinese deflation, but problems started long before Trump. Chinese companies have little pricing power and have been routinely slashing prices – so much so that the government has told businesses to stop. Consumer demand is weak, hurting company profits and hampering wages, feeding back into weak demand. The housing market never truly recovered from its crash years ago either, further sapping consumer confidence.
Beijing has been pursuing stimulus measures for nearly a year, but the impacts have been underwhelming. Its fundamental problem is that the Communist Party’s main lever for boosting growth – ramping up production – just makes the oversupply issues worse. Official growth numbers still show the economy reaching the 5% target, but that’s largely because of how production – the “P” in GDP – is counted. The factories are firing; people just aren’t buying what they produce. This isn’t to say the official figures are lying, but that the growth targets officials judge the economy against don’t always reflect how the economy feels for most people.
President Xi Jinping has prioritised stability over prosperity in recent years, but there are high-ups in China who are deeply concerned about deflation (as the crackdown on price-cutting shows). Rumours of deflation-busting measures were enough to push Chinese stocks and iron ore prices higher on Friday – as these rumours usually suggest someone is leaking a story.
There are also tentative reports that Xi’s authority might be waning (from total control to near-total control), after the politburo agreed rules on delegating some powers. That’s speculative, but it’s worth remembering that, since 1989, strong growth has been the party’s side of the social contract.
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Please see below article received from Brooks Macdonald this morning, which provides a global market update for your perusal.
What has happened
A good-but-not-great set of results from Nvidia on Wednesday evening plus more trade tariff comments from US President Trump in the past 24 hours collectively weighed on sentiment yesterday. The US technology megacap ‘Magnificent Seven’ group fell -3.03% on Thursday, with Nvidia down -8.48%. That pushed the US S&P500 equity index down -1.59% yesterday, and on course for its worst week since September, while the pan-European STOXX600 equity index dropped around -0.46%, all in local currency price return terms.
More Trump tariff headwinds for markets
Markets had to weather more Trump tariff headwinds on Thursday. Yesterday saw US President Trump announce an additional 10% trade tariff hike on China, as well as pushing ahead with 25% tariffs on Canada and Mexico, all due to be effective from Tuesday next week, 4th March. In addition, Trump said his plan for “reciprocal” tariffs on those countries that currently tariff US trade would still go ahead as planned in just over a month’s time on 2nd April.
A mixed US economic and inflation picture
Yesterday saw a second update on calendar Q4 2024 US economic growth and inflation. In the mix, US Gross Domestic Product (GDP) rose by an unrevised +2.3% quarter-on-quarter annualised – still a decent number versus the US Federal Reserve’s longer-run US economic growth estimate of +1.8%. However, as regards underlying inflation, according to the US Personal Consumption Expenditures (PCE) price index, core prices (excluding energy and food) rose to +2.7% quarter-on-quarter annualised, faster than the +2.5% initially reported and expected.
What does Brooks Macdonald think
Trump’s tariffs hold a stagflationary tilt-risk for markets, in that, at the edges, such trade levies would dampen economic growth, while buoying inflationary pressures. Of course, it is worth bearing in mind that we have potentially seen this movie before so-to-speak .. at the start of February, Trump’s proposed tariffs against Canada and Mexico were extended by a month with just hours to spare until they had been due to come into force. As the late British historian A.J.P. Taylor, who specialised in 19th and 20th century international diplomacy, reminds us, “nothing is inevitable until it happens.”
Bloomberg as at 28/02/2025. TR denotes Net Total Return.
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Please see the below update from Evelyn Partners Investment Strategy team on today’s Bank of England MPC decision to continue to hold interest rates at 5.25%:
What happened?
The Bank of England (BoE) held the base rate at 5.25% at their meeting today. This was consistent with market expectations and marks the fourth consecutive meeting where rates have been held at this level.
Interestingly, the committee vote was split three ways, with two members voting for a hike, six voting to hold, and Swati Dhingra voting for a 25 basis point cut.
What does it mean?
As expected, the BoE held interest rates at 5.25%. Markets are now focused on when the Bank will cut interest rates and how far they will go. And perhaps Swati Dhingra’s vote to cut the base rate signals that the tide is set to turn. This was the first vote for a cut since the pandemic started almost four years ago. Although clearly this will continue to depend on the incoming data, which has been favourable since the Monetary Policy Committee (MPC) last met in December.
December CPI came in at 4.0% year-on-year, which was well below the Bank’s forecast of 4.6%. The headline figure was helped by services inflation, which was 0.5% percentage points below the Bank’s November forecast of 6.9% year-on-year. Similarly, the latest wage data shows further deceleration. The direction of travel seems encouraging, so much so, that the consensus forecast is that CPI will be 2.1% by the second quarter of this year.
The guidance published today by the MPC provided more hints on how they see the economic outlook. Compared to December’s guidance, the MPC dropped the language mentioning the risk of further interest rate tightening, signalling they are less concerned about inflation remaining stubbornly high. We also received the Bank’s latest forecasts. It expects GDP growth of 0.25% in 2024 and 0.75% in 2025. Similar to the consensus view provided in the Bloomberg survey of economists, the Bank sees inflation decelerating to 2% in Q2 2024, before it picks up again in the second half of the year.
This should give the Bank the ammunition it needs to cut rates around the middle of the year. Money markets are split on whether the base rate will be cut in May, but they have more conviction that we will see at least one cut by June. They are also pricing 100 basis points of cuts by the end of 2024.
Bottom Line
The BoE held interest rates at 5.25%. We expect to see the first rate cut around the middle of the year as inflation decelerates to the 2% mark.
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Please see below, Brewin Dolphin’s ‘Markets in a Minute’ which provides a brief analysis of the key news from global economies. Received late yesterday afternoon – 14/11/2023
Stocks mixed on hawkish central bank comments
Stocks gave a mixed performance last week following hawkish comments from central bank policymakers.
After enjoying its longest winning streak in two years, the S&P 500 slumped on Thursday after Federal Reserve chair Jerome Powell said the central bank was not confident it had done enough to rein in inflation. A tech-driven rally on Friday helped the S&P 500 end the week up 1.1%.
Powell’s comments weighed on indices in Europe, with the Stoxx 600 slipping 0.1%. European Central Bank (ECB) president Christine Lagarde added to concerns about rates staying higher for longer, saying it would take more than the next couple of quarters for the ECB to start cutting rates. The FTSE 100 declined 0.8% after Bank of England governor Andrew Bailey said it was “really too early” to talk about cutting rates.
In Asia, China’s Shanghai Composite declined 0.6% after consumer prices fell in October, adding to concerns about the country’s economic outlook.
Investors await US inflation data
Stocks were mixed on Monday (13 November) as investors awaited the release of US inflation data on Tuesday. The Stoxx 600 rose 0.8%, the FTSE 100 added 0.9% and the S&P 500 edged down 0.1%. In economic news, figures from Rightmove showed new seller asking prices in the UK fell 1.7% this month, the largest November drop for five years. Nevertheless, Rightmove’s director of property science Tim Bannister said the year so far had been better than many expected, with new seller asking prices just 3% behind May’s peak.
The FTSE 100 was flat at the start of trading on Tuesday as figures from the Office for National Statistics (ONS) showed wage growth cooled slightly in the three months to September. Earnings excluding bonuses were 7.7% higher than in Q3 2022. This was a slight slowdown from 7.8% in the previous period, which was the highest since comparable records began in 2001.
UK economy stagnates in third quarter
As well as interest rate commentary, last week saw the release of some important pieces of economic data, including the latest UK gross domestic product (GDP) figures. The data from the ONS showed GDP was flat in the third quarter compared with the previous three months, following a 0.2% expansion in the second quarter. There was a 0.1% decline in services sector output, which offset a 0.1% increase in contraction sector output and broadly flat production sector output.
The 0% figure was in line with the Bank of England’s expectations and better than the 0.2% contraction forecast by economists. Flat growth means the UK has managed to avoid a recession this year, which is defined as two consecutive quarters of declining GDP.
Eurozone retail sales fall for third straight month
In the eurozone, the latest retail sales data continued to point to a weak European economy. Retail sales fell for the third consecutive month in September, declining by 0.3% from the previous month, according to Eurostat. An increase in sales of food, drinks and tobacco was offset by falls in non-food products and automotive fuel. The decline was worse than the 0.2% drop expected by analysts, although sales for August were revised up from -1.2% to -0.7%.
On an annual basis, sales were 2.9% lower than in September 2022. This was worse than the 1.8% year-on-year decline in August, but better than the 3.2% contraction forecast by economists.
US consumer sentiment drops to six-month low
In the US, consumer sentiment fell for the fourth-consecutive month in November, according to the University of Michigan’s preliminary consumer sentiment index. The headline index fell from 63.8 in October to 60.4 in November, the lowest level since May. The preliminary gauge of current conditions fell from 70.6 to 65.7, and the expectations index declined from 59.3 to 56.9. Joanne Hsu, the University of Michigan’s surveys of consumer director, said the decline was in part due to growing concerns about the negative effects of high interest rates, as well as geopolitical concerns.
The report also showed that year-ahead inflation expectations rose from 4.2% to 4.4%, the highest since April 2023, while long-run inflation expectations rose from 3.0% to 3.2%, the highest since 2011.
China’s consumer prices fall in October
Over in China, consumer prices fell in October, according to the National Bureau of Statistics. The consumer price index fell 0.2% year-on-year after being unexpectedly flat in September, underscoring the country’s fragile economic recovery since the pandemic. Food prices were the main culprit, with overall food prices down 4.0% from a year ago. Pork prices were 30.1% lower than in October 2022.
Meanwhile, producer prices declined 2.6% year-on-year, compared with a fall of 2.5% in September. The producer price index has now been in negative territory for 13 consecutive months.
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Please see below, Brooks Macdonald’s ‘Daily Investment Bulletin’ which provides a brief update on global investment markets. Received this afternoon – 28/09/2023
What has happened?
US bond yields continued their grind higher yesterday with the US 10-year Treasury yield now at 4.61% after another rise in oil prices stirred fears of a higher for longer inflationary backdrop. With these moves the US dollar has also been appreciating further, with the dollar index almost back to levels seen in November last year. US equities managed to stay flat for the day, but this conceals a high level of intraday volatility and general uncertainty.
Bond moves
Bond markets are certainly leading broader financial markets now with bonds seeing another heavy selloff yesterday. The Bloomberg aggregate global bond index, a widely used measure of the broad bond market, reached its lowest price level of 2023 as the benchmark 10-year and 30-year Treasury prices fell. These moves are quickly moving into the real economy with the US 30-year mortgage rate now at 7.41%, the highest level since December 2020. While the lag is relatively short, mortgage rates do act with a delay so there is likely further upside to these rates in the coming weeks. European bonds were also under pressure with 10-year bund yields hitting a 10-year high and Italian bonds underperforming after the Italian government unveiled a 4.3% expected deficit for 2024.
Oil Prices
The latest move higher in bond yields, which move inversely to prices, has been catalysed by growing inflation expectations caused by the uptick in energy prices. Brent crude closed above $96 per barrel yesterday, a fresh high for 2023. The US oil benchmark, WTI, saw an even greater percentage climb yesterday with the price moving to a one-year high of $93.68. While recent moves have been spurred by supply cuts, yesterday’s moves reflected lower-than-expected storage levels in the Cushing oil reserves.
What does Brooks Macdonald think?
Robust US economic data has been a key pillar of the soft-landing narrative in recent months however the recent consumer confidence data, and yesterday’s card spending data, suggests that the US consumer is showing signs of slowing. The US consumer discretionary sector has declined by almost 10% over the last fortnight as investors start to price in a heightened risk of a hard landing.
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Please see below article received from EPIC Investment Partners this morning, which reports on yesterday’s Republican debate in Milwaukee.
Last night, eight of the nine Republican presidential hopefuls took to the stage in Milwaukee for the first time. There was a sense that it would be a bit of a damp squib without former president Trump. However, that was not the case. There were various attacks on President Biden’s policies and each other whilst they attempted to close the gap on the GOP frontrunner Donald Trump.
The hopefuls also sparred over abortion, leadership experience and climate change.
As the debate progressed, they did diverge on the question of whether they would back Trump as the party’s nominee in the event of his conviction in any of his four legal cases. Six of the eight indicated they would still support him even if he is convicted of a crime.
Trump, who leads the GOP field by double-digit margins, chose not to participate in the debate, effectively treating his potential nomination as a foregone conclusion. Instead, the current frontrunner shared a pre-recorded interview with former Fox host Tucker Carlson, which was broadcast on X, the platform formerly known as Twitter. Trump is also not planning to participate in the next debate, due to be held at the Ronald Reagan Presidential Library in Simi Valley on September 27.
Trump, who has spent years claiming that the 2020 election was rigged, is already floating groundless claims that 2024 will be stolen from him too.
He was asked by Carlson, “If you’re saying they stole it from you last time, why wouldn’t they do the same this time?” Trump replied: “Oh, well they’ll try. They’re going to be trying, yeah. And not only me.”
Whilst Trump was not on the stage in Milwaukee, both he and President Biden used the debate to try to raise cash for their respective campaigns. Biden’s fundraising committee ran ads on Facebook during the debate, calling the GOP candidates a “threat to our democracy.”
Trump’s campaign set out his pitch saying that as long as there are still other GOP candidates in the race, the party is wasting resources that could be spent attacking Biden.
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Please see the below article from Brewin Dolphin commenting on the latest stock market movements, received after close of business yesterday.
Stocks fall as China’s economy impacts sentiment
All major indices ended the week in the red as fears over China’s economic recovery impacted investor sentiment.
The FTSE 100 dropped 3.3% as UK core inflation remained flat and wage growth accelerated, indicating the Bank of England may need to raise interest rates further. In Europe, the Dax fell by 2.1% and the Stoxx 600 declined 2.5% amidst fears that interest rates may remain high for a prolonged period.
Over in the US, the S&P 500 fell by 2.7%, the Nasdaq dropped 3.6% and the Dow lost 2.3% as the benchmark ten-year US Treasury yield reached its highest level since October.
Meanwhile in Asia, Hong Kong’s Hang Seng lost 4.4%, China’s Shanghai Composite dropped 1.5% and Japan’s Nikkei 225 declined 1.9% after disappointing economic data out of China.
China reduces key interest rate
Markets were mixed on Monday (21 August), with sentiment affected in part by the People’s Bank of China reducing its key interest rate for the second time in three months.
The central bank reduced its one-year prime loan rate, which is primarily used for corporate lending, by 10 basis points to 3.45%. The bank’s five-year loan prime rate remained unchanged. The decisions surprised economists, who had anticipated a 0.15 basis point reduction to both rates. Investors will now be looking ahead to the Federal Reserve’s annual Jackson Hole Symposium conference, which will run from Thursday to Saturday.
Over in the UK, house prices fell by 1.9% in August to an average £364,895, the sharpest decline so far this year, Rightmove’s House Price Index shows. The average five[1]year fixed mortgage rate has fallen to 5.81% from 6.08% three weeks ago.
UK public sector net borrowing (which excludes public sector banks) was £4.3bn in July, £3.4bn less than in July 2022, and below economists’ forecasts of around £5bn. It was the fifth highest July borrowing since records began in 1993.
UK headline CPI – YoY % change
Core CPI, excluding energy, food, alcohol and tobacco, rose by 6.9% in the 12 months to July, remaining unchanged from June.
Producer price inflation (PPI) also fell in July, with input prices declining 3.3% in the year to July, down from a fall of 2.9% in the year to June, according to the ONS.
Producer output prices also declined by an annualised 0.8% in July, down from a rise of 0.3% in the 12 months to June. It is the first time that output PPI has been negative since December 2020, and the twelfth consecutive month that the annual inflation rate has slowed.
On a monthly basis, input prices fell by 0.4% while output prices rose by 0.1% in July.
UK Labour market cools
The UK job market has shown signs of cooling as employment rates fell and unemployment rates increased in the three months to June compared to the previous quarter, according to the ONS.
The employment rate was estimated at 75.7%, a 0.1 percentage point decline on the first quarter of the year and 0.8 percentage points below pre-pandemic levels. The decrease was largely driven by a decline in full-time employees and self-employed workers.
The unemployment rate was estimated at 4.2%, up 0.3 percentage points than the previous quarter and 0.2 percentage points above pre-pandemic levels. This was primarily driven by those unemployed for up to six months.
Meanwhile, annual growth for regular pay (which excludes bonuses) was 7.8% in the three months to June, the highest level since records began in 2001. Average weekly earnings for regular pay were £613 in June, up from £610 in May.
China’s economic recovery weakens
China’s retail sales rose by 2.5% in July, falling short of an expected 4.5% increase. Industrial production also fell short of expectations, rising by 3.7% in July. Economists had predicted an increase of 4.4%.
Real estate investment fell by 8.5% year-on-year in July, with investment in residential buildings seeing a decline of 7.6%. Meanwhile, turmoil in China’s property sector continued as new home sales declined 19% year-on-year in July, while overall house prices fell by 0.2% month-on-month.
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Please find below the Tatton ‘Monday Digest’ which provides an overview of global economic news from the past week. Received this morning – 24/07/2023
Another inflation driver turns over
Last week, markets yet again revolved around inflation, wages and profit margins. In the UK, we finally received some of the positive inflation news that has been stoking US markets. June’s consumer price index (CPI) decline to 7.9% year-on-year could be a watershed moment, giving the Bank of England (BoE) the green light to raise interest rates only by another 0.25% in August. To put this into context, last Tuesday markets were still pricing in a 0.50% hike.
The better-than-expected inflation news helped UK equity markets to storm higher on the week, egged-on by sharp falls in medium-term gilt yields (and parallel gilts price rises!). Sterling retreated from its recent highs against the US dollar, but UK stocks closed the week leading the rest of the world higher, even in UK sterling-based terms.
On the other side of the Atlantic, the US second quarter earnings season has showed that margins are finally coming under pressure across the board. Tesla withdrew its previous statement that margins would “remain among the highest in the industry,” and a cautious commentary left the door open for another round of price cuts soon. It’s not just Tesla, however, and margins have weakened substantially in other integral areas like trucking and freight (which we discuss in greater detail below). We have become used to the UK headlines about strikes, but if the US turns out to have a more entrenched inflation path because labour relations have worsened it may face the same worries as we have faced in the UK.
As the earnings season progresses, we appear to be in a new phase, where companies have lost pricing power but sales should hold up because they are not cutting labour aggressively. We will be listening very closely to what the US Federal Reserve tells us after this Wednesday’s Federal Open Market Committee meeting.
Chinese property developers are on their own
Since property giant Evergrande defaulted on its debt two years ago, the world’s most leveraged property developer has been in a lengthy restructuring process which, for the most part, has looked like artificial life support rather than a cure. Its slow-motion collapse has been a major part of China’s property crisis, and is a substantial drag on growth for the world’s second-largest economy. None of the property developer’s problems should surprise us anymore, and yet, its latest announcements cannot help but make collective eyes water. In just two years, Evergrande made losses of $81 billion. The incredible losses are driven mostly by asset depreciation, thanks to sinking values in China’s building industry. Analysts have suggested that the fact such dire figures are now being released shows an acceptance the hoped-for improvement is not coming anytime soon.
The Chinese government has seemed surprisingly uninterested in arresting the decline. The last few months have been horrendous for the ailing property sector, but policy support has been minimal. If Beijing does let large developers go bankrupt, equity and foreign bondholders will be the least protected. The distress also has big implications for China’s banks – which are among the largest financial institutions in the world. Developers’ financial struggles seriously impact banks, which will inevitably mean tighter lending conditions for everyone. That could well dampen any help that comes from the authorities.
China’s hopes of a post-Covid boom have well and truly evaporated, pushing down asset values which rallied into the start of this year. The property developers’ financial problems are proving contagious as they are weighing down on consumer and business sentiment. As such, they have been at the heart of the weak post-lockdown rebound in Chinese consumption and that has led to rising savings rates and even weaker private sector activity. This is not to say that Beijing is against growth – both words and actions suggest the opposite. However, it wants growth in productive areas and property has become unproductive. Developers may already be resigned to being given nothing more than life support.
Freight not great
There are serious questions over the health of the US freight industry at the moment. Relations between companies, drivers and other workers have become highly antagonistic, just as revenues have been falling. UPS, the world’s biggest courier, has been in the spotlight due to its negotiations with the Teamsters Union, with the two sides failing to agree wage increases for part-time workers, who make up roughly half of UPS’s unionised workforce in the US. UPS isn’t the only company under pressure. Yellow Corporation, the parent company of Holland and Yellow Freight, announced it is $50 million short of the pension contributions it owes, and remains in severe financial distress.
Yellow’s likely demise is a symbol of America’s freight recession. Early in the pandemic, the surge in transport demand created huge capacity expansion in trucking, only for companies to find themselves short of drivers. Workers’ increased pricing power meant significantly higher wage bills, eating into profit margins and worsening financial metrics. When the post-Covid boom dwindled, revenues fell sharply and firms were caught out.
Some of the bad news for freight companies is good news for US consumers. The ongoing freight recession means lower costs, while the inventory situation could also mean the easing of goods prices. This would help inflation-bruised consumers and support demand but, as ever, this has to be balanced against the increased risk of defaults. A wave of defaults hurts everyone, making finances tighter than they already are. This is not happening yet, but is very much a live possibility for the freight sector.
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