It was a good week for US equities, which rebounded +5.7% in nominal terms (+4.4% in sterling terms) after last week’s hefty falls. The same can be said for Gold, which advanced a further +6.6% in US dollar terms. However, it wasn’t such a positive week for Asian ex-Japan and EM equities, which fell -5.3% and -5.0% respectively in sterling terms. Elsewhere, US and UK government bond markets both declined -2.5% in respective local currency terms, while UK index-linked bonds fell 5.0%.
Trade tensions rattle markets amid ever evolving US policy
Last week, US President Donald Trump’s trade policies once again dominated investor sentiment, sending global markets on a wild ride. Stocks opened sharply lower on Monday after the Trump administration unveiled new tariffs on Chinese imports. By Wednesday, however, markets began to stage a rebound after the president unexpectedly announced a 90-day pause on higher tariffs for most countries – excluding China. The escalating trade war between the world’s two largest economies further stoked fears over the trajectory of global economic growth.
As always, we encourage long-term investors to stay focused and avoid reacting emotionally to short-term market swings. For a deeper dive into Trump’s tariffs and how as active managers we are navigating fast-moving markets, please read our latest article on the subject, published on 11 April here.
Market reaction: a rollercoaster week for stock markets
US stocks staged a dramatic rebound last week – shaking off a sharp sell-off to close firmly higher, capping off one of the most volatile weeks in recent memory. Markets initially plunged further on Monday, extending the prior week’s losses, after the announcement of new US tariffs on Chinese imports, first raising the total to 104% and then increasing those to 125%. All told, the Trump administration says China is ultimately facing 145% tariffs on goods exported to the US. However, sentiment quickly reversed midweek after the White House unexpectedly announced a pause to the higher reciprocal tariffs for most countries for 90 days – allowing a period for negotiation. On Wednesday, leading the recovery was the tech-heavy Nasdaq index, surging over +12% on the day — its second-best day on record — while Japan’s Nikkei 225 rallied +9%. By week’s end, the S&P 500 had gained +5.7%, and the Nasdaq Composite rose +7%, though all major European, Asian and emerging market indices (in local currency) ended the week lower.
US Government Treasury yields climbed sharply as risk appetite returned, with the 10-year yield jumping from under 4% to above 4.5%, weighing on bond prices. The US dollar fell against most major currencies over the week, with the greenback hitting a three-year low versus the Euro. The US dollar is typically viewed as a safe-haven asset, but the decline suggests some loss of investor confidence given concerns around the predictability of US economic policies.
US CPI inflation
Amid the tariff induced market turbulence, the latest US Consumer Price Index (CPI) print unexpectedly showed inflation cooling to an annual rate of 2.4% in March, down from 2.8% in February to a six-month low. It is the first month-on-month decline in CPI prices in nearly five years – since May 2020. The US Federal Reserve will be pleased to see inflation getting back closer to its target level of 2% and will welcome any sign that the cost of living is no longer surging in America. However, some economists fear this could mark the trough for US inflation this year – at very least it is doubtful a steady easing of inflationary pressures can be sustained moving forward, with US trade tariffs likely to stoke inflationary impulses.
UK Growth exceeds expectations
The UK economy grew by a better-than-expected 0.5% month-on-month in February, with the services sector particularly strong according to the Office for National Statistics (ONS). The latest GDP print comes as the impact of tariffs imposed on goods entering the US looms large, and it was notable that exports to the US increased by some £500m – the third consecutive month of increases – as businesses seemingly sought to beat the assumed tariff deadline.
However, the UK should be relatively insulated from the impact of US trade tariffs given the comparatively small quantity of goods the UK exports to the US and its relatively small manufacturing sector. GDP growth of just 0.1% had been anticipated according to consensus projections from analysts, however a 0.3% expansion in the services sector and a notable recovery in production output, as well as an increase in construction output, all contributed to drive the monthly print higher.
The figures will make welcome reading to UK Chancellor, Rachel Reeves, as the government has made a big play of growing the economy being its top priority. However, monthly growth figures are notoriously volatile and very often subject to notable revision, and the wider context still involves a backdrop of frustratingly sluggish growth. Furthermore, the February print still comes ahead of many of the tax hikes on businesses announced at the last Budget, while households brace for the impact of rising utility bills.
