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Weekly Comment: Markets recover as Trump flip flops on EU tariffs

Date: 29 May 2025

5 minute read

Weekly podcast – Market overview

This week's host, Equity Research Analyst, Oli Creasey discusses the ups and downs of the past week with Equity Research Analyst, Maurizio Carulli, and Head of Fixed Interest Research, Richard Carter. Among the topics discussed – Worldwide markets recovering in light of President Donald Trump's change of stance on EU tariffs, US stocks underperforming while UK stocks outperforming on the week, inflation increasing sizeably in the UK, and much more.

This is a marketing communication and is not independent investment research. Financial Instruments referred to are not subject to a prohibition on dealing ahead of the dissemination marketing communications. Any reference to any securities or instruments is not a personal recommendation and it should not be regarded as a solicitation or an offer to buy or sell any securities or instruments mentioned in it. This material is not tax, legal or accounting advice and should not be relied on for tax, legal or accounting purposes. Quilter Cheviot Limited does not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting adviser(s) before engaging in any transaction.

Market overview – Richard Carter, Head of Fixed Interest Research

The latest developments on US trade tariffs have seen a quick walking back of threatened sharp increases on EU levies, providing further evidence suggesting that the Trump administration is using tariffs as a negotiating tactic rather than a standalone policy choice.

The announcement on Friday of a proposed 50% EU tariff effective from 1 June caused some weakness in stock markets heading into the weekend, but a couple of days later the threat was softened with the start date pushed back until 9 July. The fact the threat was made shortly before trade negotiations was not lost on investors and even though markets dropped swiftly on the news, they had already recovered somewhat before Friday’s close.

Last week began relatively quietly but a weaker-than-expected 20-year Treasury bond auction on Wednesday caused bond yields to rise and stocks to move lower. The 30-year Treasury yield hit its highest level since 2023 as the sign of softening demand coming shortly after credit rating agency Moody’s downgraded US debt raised concerns. The burgeoning US deficit has been a worry for bond market investors for some time now and President Trump’s tax bill is believed to increase debt over the next few years, with tax cuts front-loaded and spending reductions later on. The bill passed through the House of Representatives last week and the White House are aiming to have it signed into law by 4 July.

Weekly economic announcements:

Last week the MSCI All Country World Index (MSCI ACWI) declined 1.4% (4.1% YTD). 

United States:

US stocks underperformed last week, falling 2.6% (-0.8% YTD) to move back into negative territory on the year. Growth shares underperformed value shares and small caps fared worse than large caps. Tech-based benchmarks were broadly in line with the wider market, falling 2.5% (-2.7% YTD). The weak Treasury auction and tariff threat weighed on investor sentiment.

However, bond yields recovered into the weekend, with the 10-year Treasury yield rising only 3 basis points (0.03%) on the week to 4.51%, down 6 basis points YTD. The recovery in bond markets was aided by a move higher on the news of potential EU tariff increases.

United Kingdom:

UK stocks outperformed on the week, ending up 0.4% (8.6% YTD). The pound hit its highest level since February 2022 against the US dollar, closing at US$1.35. The 10-year gilt yield closely tracked its US counterpart, rising 3 basis points to end the week at 4.68%, up 12 basis points YTD.

There was a sizable increase in UK inflation in April, with the consumer price index (CPI) rising to its highest level in over a year, at 3.5%. The jump from 2.6% in March was largely down to higher utility bills, as regulators raised the household energy price cap and water bills and road tax increased. Derivatives markets are now pricing just one more 25 basis point Bank of England rate cut this year, down from two before the data.

Europe (ex UK):

European stocks markets fell last week, as the MSCI Europe ex UK dropped 0.9% (9.9% YTD) to end a run of five consecutive weekly gains. Most of the losses occurred after Trump’s threat of 50% tariffs. German equities declined 0.6% (18.7% YTD), French stocks slid 1.4% (7.2% YTD) and Italian bourses dipped 1.2% (19.1% YTD). The euro appreciated on the week against the US dollar, closing at US$1.14, up from US$1.12.

 

This content has been created solely for information purposes. The value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future return. You may not recover what you invest. Changes in exchange rates may have an adverse effect on the value, price or income of foreign currency denominated securities. Levels and bases of taxation can change. Investments or investment services referred to may not be suitable for all recipients. The information on which the presentation is based is deemed to be reliable, but we have not independently verified such information and we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. Any reference to the Quilter Cheviot model portfolio, which is used for internal purposes, is purely illustrative and should not be relied upon. The figures quoted do not include charges.

Approver: Quilter Cheviot, 29 May 2025  

Authors

Ollie Creasey

Head of Property Research

Maurizio Carulli

Equity Research Analyst

Richard Carter

Head of Fixed Interest Research

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The value of your investments and the income from them can fall and you may not recover what you invested.