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.
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Approver: Quilter Cheviot, 29 May 2025
