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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Marcus Blenkinsop
14th July 2025