Weekly Comment: Stocks recover despite new tariffs

Market overview 

Global equities moved higher last week, recouping some of the losses of the previous week even though the US placed sweeping tariffs on dozens of countries. Tariffs once more dominate the headlines, as more than 90 countries faced new US levies. Separately, US President Donald Trump threatened to implement a 50% tariff on Indian imports, unless they stopped buying Russian oil. And a 100% tariff was threatened on foreign made computer chips, reportedly designed to encourage tech firms to invest in the US.

The use of tariffs threats adds more credence to the notion that Trump in several instances is using them as a negotiating tool rather than a pure economic policy. Put another way, they are being used in some areas to seemingly extract concessions rather than because of a focus on raising tax revenue. The negotiation of carve-outs and exemptions, like the deals with Nvidia and AMD to pay 15% of China chip sale revenues to the US government, support this idea.

Corporate earnings continued to show decent resilience despite the challenging macroeconomic backdrop. Inflation data out this week will be closely followed to see if inflation is rising further, and to what extent. The Institute for Supply Management (ISM)’s service-sector price index hit its highest level since October 2022 last week. Market expectations of a Federal Reserve rate cut in September have risen substantially in recent weeks, but a hot inflation print could make investors question that position.

Weekly economic announcements:

The MSCI All Country World Index gained 2.6% last week (13.2% YTD).

United States:

US equities recorded their best week from June as they bounced back from some weakness around the turn of the month to rise 2.4% (9.5% YTD). Growth stocks strongly outperformed value stocks, with small caps broadly inline with large caps. Tech stocks outperformed, in part due to carve outs on tariffs, rallying 3.9% (11.5% YTD). Apple’s commitment to invest a further US$100bn in the US (on top of a previously announced US$500bn) reportedly would exempt the firm from Trump’s steep semiconductor tariffs.

United Kingdom:

UK stocks lagged a little last week, adding 0.5% (14.0% YTD). Some of this underperformance could be explained by a move higher in sterling, which ended the week at US$1.35, up from US$1.33. Mid-cap stocks fared a bit better than large caps, rising 1.2% (8.8% YTD). Gilt yields moved up, with the 10-year gilt yield ending the week at 4.60%.

Europe ex UK:

European stocks traded largely in line with global benchmarks last week, as the MSCI Europe ex UK gained 2.5% (10.0% YTD). Strong corporate earnings supported the gains while there was also some positive news regarding a possible resolution of the Ukraine-Russia conflict. German stocks moved up 3.1% (21.4% YTD), French equites added 2.6% (8.0% YTD) and Italian bourses rose 4.2% (26.4% YTD). The euro ended the week near where it began it against the US dollar, closing at US$1.16.

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