Market overview – Richard Carter, Head of Fixed Interest Research
US President Donald Trump has brought trade tariffs back to the front and centre of investors’ minds after announcing that the US would place 30% levies on the European Union and Mexico from 1 August. The news came just a matter of days after Trump declared 25% tariffs on South Korea and Japan, in addition to varying levels of tariffs on a number of other countries including Canada, South Africa, Thailand and Malaysia. There was also an upcoming 50% copper tariff announced.
There had been a prolonged period of de-escalation in international trade tensions since early April but the latest moves suggest that this issue is not yet behind us and uncertainty remains. Given the 90-day pauses and extended negotiation deadlines there is a feeling that Trump is using tariffs more as a threat and a negotiating ploy rather than a desired policy. This can be seen in the market reaction to the latest events as US stock futures and European stock markets opened only modestly lower on Monday morning.
Senior EU officials do not expect Trump to ultimately follow through on his new 30% tariff threat, according to the Financial Times, but as the situation becomes more fraught the chance of a misstep and unintended outcome rises. European officials have been negotiating a deal with Washington in recent month, with a stated aim to reduce Trump’s 25% tariff on vehicles as well as an agreement on ending levies on spirits, aircraft and parts. In return, the EU is considering reducing its €198bn goods trade surplus by buying more US armaments and natural gas.
Weekly economic announcements:
The MSCI All Country World Index (MSCI ACWI) dipped 0.3% last week (+11.0% YTD).
United States:
The main economic event last week was the release of the minutes from the Federal Reserve’s June monetary policy meeting. The publication revealed splits among rate-setters with some members open to rate cuts as soon as the next meeting and others not anticipating cutting rates at all in 2025.
US stocks tracked global benchmarks last week, declining 0.3% (+7.2% YTD). There was a contained negative reaction to the tariff announcements. Growth stocks modestly outperformed while small caps lagged large caps.
United Kingdom:
UK stocks outperformed last week, rising 1.3% (11.7% YTD). The pound depreciated versus the US dollar, closing at US$1.35. The latest economic data pointed to more sluggish UK growth, with a 0.1% GDP contraction in May after a 0.3% decline in April. Over the rolling three-month period GDP expanded by 0.5%, slowing from 0.7% in the three months through April. The UK 10-year gilt yield ended last week at 4.62%, up from 4.55%.
Europe ex UK:
Continental European stocks outperformed last week, with the MSCI Europe ex UK adding 1.1% (10.8% YTD). The gains were pared however on tariff threats. German benchmarks gained 2.0% (21.8% YTD), French indices were up 1.7% (9.2% YTD) and Italian bourses rose 1.2% (21.2% YTD). The euro declined against the US dollar, end the week at US$1.17.
