It’s almost impossible to write any commentary on financial markets this year without mentioning Donald Trump. After the turmoil of April, and the dramatic tariff announcements which sent markets into a spin, May was relatively sedate in comparison.
United States
US equity markets bounced back in May. The S&P 500, the Nasdaq Composite and the Dow Jones made significant gains in the month, although that came as no surprise following on from early April’s dreadful performance. Equity markets were buoyed by two key factors:
Firstly, trade tensions eased with Trump’s 90-day suspension of ‘Liberation Day’ tariffs. A possible thawing of the trade war with China in particular helped investor confidence.
Secondly, Federal Reserve Governor, Christopher Waller, has suggested that inflationary pressure from tariffs are likely to be short-term and as long as that remains the case, should not influence monetary policy. Speaking at an event in Seoul, South Korea, on 1st June Waller said, “I support looking through any tariff effects on near-term inflation when setting the policy rate.”
The strong labour market and progress towards 2% inflation in April were pivotal to his positive comments about future rate cuts.
Just below this positivity is ongoing uncertainty about trade policy. The pause is just that – a pause – and the void has been filled with a mixed bag of tariffs with different rates and implementation timescales. There is also doubt about the long-term validity of some of these tariffs, as legal challenges have been raised.
With equity markets in a better place for now, there remain serious concerns about US bonds.
JP Morgan Chase CEO, Jamie Dimon, has stated his belief that the US bond market will ‘crack’ under the weight of government debt, ahead of Trump’s new budget bill which, if voted through, will add another $3.3tn of debt by 2034, according to the independent Committee for a Responsible Federal Budget. Moody’s has warned the bill would push the US deficit from 6.4 percent of GDP last year to just under 9 percent by 2035.
Demand for US bonds has slowed in recent years; in particular from foreign investors who have pulled back even more aggressively since the tariff announcements. Rating agency Moody’s stripped the US of its triple-A credit rating in May.
It has been repeatedly stated by commentators that the malaise caused by the tariff announcements in equity markets were designed to drive investors towards bonds, drive down interest rates further, and relieve some of the pressure on US government debt. That hasn’t happened so far.
UK
UK equity markets also experienced rebound, with the FTSE 100 index rising to close the month at 8,772.38. Sectors which have benefited from government investment and support made notable gains, including defence and energy.
There remains nervousness about the government’s spending plans and its ability to deliver the growth they crave. The Organisation for Economic Co-operation and Development (OECD) downgraded the UK’s growth forecast to 1.3% for 2025 and 1% for 2026, citing trade uncertainty and falling confidence.
The Bank of England cut interest rates to 4.25% in early May and whilst there was a suggestion that more may follow, the pace and timing are unclear. The Bank’s rate-setting committee was divided. Of the nine members, five voted for the 0.25% cut announced, two voted in favour of a larger reduction to 4% and two voted for no change.
New Monetary Policy Committee member, Alan Taylor, was one of those in favour of a larger rate cut. He has been quick to publicly brush off concerns about future rate cuts, but inflation figures have made investors more pessimistic about a rate cut in June.
Annual inflation as measured by the Consumer Price Index (CPI) was up at 3.5% as of April, higher than expected. This was driven largely by a spike in air fares over Easter. The Office for National Statistics (ONS) said the timing of the Easter holiday, which took place in April this year, was probably a contributor to the big jump in air fares, which surged by 27.5% from March, the second-biggest month-on-month increase for April on record.
Prime Minister Keir Starmer was able to announce his own trade deals in May. Whilst they have all come with caveats, criticisms and concerns from his political opponents, he has demonstrated some negotiating agility to land deals with India, the US and the EU in quick succession. The concessions, such as allowing European trawlers to fish in British territorial waters and providing greater access to American beef, ethanol and agricultural products, have been seized upon by his opponents.
However, they probably just reflect Britain’s position as a midsize economy operating in a world of three huge trading blocs: the US, the EU and China. We are no longer part of the EU, and the US has just torn up the rulebook on trade. The deal done with India on whisky and gin duties could not have been done as part of the EU, but many of the other concessions made still leave us in a worse trade position than prior to Brexit.
Europe
The European Central Bank (ECB) cut rates again in May, bringing the main rate to 2.0%, in response to easing inflation, which was 1.9% in May and concerns about sluggish economic momentum and the impact of tariffs.
The news on inflation, which came in lower than expected, has increased expectations that the ECB will not only cut rates in June, but also in July.
Tariff concerns will continue to circle the Eurozone for some time. Whilst EU negotiators may be more diplomatic in public than their US counterparts, they are just as determined to fight their corner. Despite this, the latest Organisation for Economic Co-operation and Development report states that it was expecting the euro area to expand by 1% in 2025, unchanged from its previous forecast. They project Eurozone inflation to come in at 2.2% this year, also in line with the March report.
There has been a concern that the good start to the year for Eurozone growth was propped up by front-loading of exports to the US ahead of tariff changes. However, the data from France does not suggest this happens, data from Spain suggests it was relatively small, and data from the German Federal Statistical Institute suggests exports were only one factor, with private consumption and investments also contributing.
US trade policy to date has not had as big an impact on Eurozone growth as many feared, but they may just take some time to materialise. EU goods exports to the United States represent around 20% of EU exports to countries outside the European Union, and only around 3% of the total EU economy. However, the indirect consequences of tariffs slowing global economic growth are very difficult to quantify.
Far East
Following trade talks in May, the US and China agreed to a 90-day pause to the retaliatory tariffs each country imposed in April. This created some breathing space for China’s economy and went some way to reversing the pessimism over growth forecasts which emerged in April.
Exports to the United States plunged by 21.0%, year on year, in April. At the same time, exports to emerging Asian markets rose by 22.0% year on year. This has inevitably raised questions about whether shipments of goods into the United States were simply being exported first to a third country for onward shipment so as to disguise its origins in China. Enforcement issues such as this were identified as fundamental flaws in Trump’s tariff policy in April.
Yields in Japanese 40-year government bonds hit an all-time high in May. This has heightened fears of further outflows from US bonds as Japanese investors move their money back home. Given Japan’s position as the world’s second largest creditor, there are concerns that this could have a knock-on effect domestically and on the global economy.
Emerging Markets
As we’ve stated several times, the impact of US tariffs on emerging markets varies considerably across regions and is dependent on a country’s direct trade exposures to the US through it’s exports, more indirectly based on the impact on its supply chains, and also their potential to benefit from the changes other countries and businesses make as they adapt to tariffs.
Africa’s exports to the US were around 1% of its total global exports. Mexico is far more exposed, with exports constituting around 27% of its GDP.
The pause on further tariffs in April helped emerging markets recover and make currencies less volatile. Domestic demand in some countries, notably India and Brazil, has been a contributing factor to some economic resilience. A weaker US dollar has also made it easier for emerging markets to service their dollar-denominated debt.
Conclusion
Whilst the world appears to have been restored to normality in May it is wise to remember that it’s a pause, not an end, to the trade turmoil we saw in April. Trump is still faced with a number of deep-seated economic problems, with a debt pile which needs to be renegotiated, and his One Big Beautiful Bill Act is going to be very expensive.
Even his election ally Elon Musk is vociferously against the bill. “This massive, outrageous, pork-filled Congressional spending bill is a disgusting abomination”, he posted.
The ride isn’t over yet.
And Finally…
Giraffes are 30 times more likely to get killed by lightning than people.
There were only five known fatal lightning strikes on giraffes between 1996 and 2010, but that’s 0.003 of the 140,000 giraffe population – which is 30 times the equivalent rate for humans.
If this blog has raised any questions why don't we have a quick chat?
Garry Hale MD & Certified Financial Planner
A brief meeting might be of interest, especially if you’re unsure just how wealth management and financial planning could help you.
It would only require the investment of an hour or so of your time, and the coffee’s not bad either.
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June Market Commentary
Introduction
It’s almost impossible to write any commentary on financial markets this year without mentioning Donald Trump. After the turmoil of April, and the dramatic tariff announcements which sent markets into a spin, May was relatively sedate in comparison.
United States
US equity markets bounced back in May. The S&P 500, the Nasdaq Composite and the Dow Jones made significant gains in the month, although that came as no surprise following on from early April’s dreadful performance. Equity markets were buoyed by two key factors:
Firstly, trade tensions eased with Trump’s 90-day suspension of ‘Liberation Day’ tariffs. A possible thawing of the trade war with China in particular helped investor confidence.
Secondly, Federal Reserve Governor, Christopher Waller, has suggested that inflationary pressure from tariffs are likely to be short-term and as long as that remains the case, should not influence monetary policy. Speaking at an event in Seoul, South Korea, on 1st June Waller said, “I support looking through any tariff effects on near-term inflation when setting the policy rate.”
The strong labour market and progress towards 2% inflation in April were pivotal to his positive comments about future rate cuts.
Just below this positivity is ongoing uncertainty about trade policy. The pause is just that – a pause – and the void has been filled with a mixed bag of tariffs with different rates and implementation timescales. There is also doubt about the long-term validity of some of these tariffs, as legal challenges have been raised.
With equity markets in a better place for now, there remain serious concerns about US bonds.
JP Morgan Chase CEO, Jamie Dimon, has stated his belief that the US bond market will ‘crack’ under the weight of government debt, ahead of Trump’s new budget bill which, if voted through, will add another $3.3tn of debt by 2034, according to the independent Committee for a Responsible Federal Budget. Moody’s has warned the bill would push the US deficit from 6.4 percent of GDP last year to just under 9 percent by 2035.
Demand for US bonds has slowed in recent years; in particular from foreign investors who have pulled back even more aggressively since the tariff announcements. Rating agency Moody’s stripped the US of its triple-A credit rating in May.
It has been repeatedly stated by commentators that the malaise caused by the tariff announcements in equity markets were designed to drive investors towards bonds, drive down interest rates further, and relieve some of the pressure on US government debt. That hasn’t happened so far.
UK
UK equity markets also experienced rebound, with the FTSE 100 index rising to close the month at 8,772.38. Sectors which have benefited from government investment and support made notable gains, including defence and energy.
There remains nervousness about the government’s spending plans and its ability to deliver the growth they crave. The Organisation for Economic Co-operation and Development (OECD) downgraded the UK’s growth forecast to 1.3% for 2025 and 1% for 2026, citing trade uncertainty and falling confidence.
The Bank of England cut interest rates to 4.25% in early May and whilst there was a suggestion that more may follow, the pace and timing are unclear. The Bank’s rate-setting committee was divided. Of the nine members, five voted for the 0.25% cut announced, two voted in favour of a larger reduction to 4% and two voted for no change.
New Monetary Policy Committee member, Alan Taylor, was one of those in favour of a larger rate cut. He has been quick to publicly brush off concerns about future rate cuts, but inflation figures have made investors more pessimistic about a rate cut in June.
Annual inflation as measured by the Consumer Price Index (CPI) was up at 3.5% as of April, higher than expected. This was driven largely by a spike in air fares over Easter. The Office for National Statistics (ONS) said the timing of the Easter holiday, which took place in April this year, was probably a contributor to the big jump in air fares, which surged by 27.5% from March, the second-biggest month-on-month increase for April on record.
Prime Minister Keir Starmer was able to announce his own trade deals in May. Whilst they have all come with caveats, criticisms and concerns from his political opponents, he has demonstrated some negotiating agility to land deals with India, the US and the EU in quick succession. The concessions, such as allowing European trawlers to fish in British territorial waters and providing greater access to American beef, ethanol and agricultural products, have been seized upon by his opponents.
However, they probably just reflect Britain’s position as a midsize economy operating in a world of three huge trading blocs: the US, the EU and China. We are no longer part of the EU, and the US has just torn up the rulebook on trade. The deal done with India on whisky and gin duties could not have been done as part of the EU, but many of the other concessions made still leave us in a worse trade position than prior to Brexit.
Europe
The European Central Bank (ECB) cut rates again in May, bringing the main rate to 2.0%, in response to easing inflation, which was 1.9% in May and concerns about sluggish economic momentum and the impact of tariffs.
The news on inflation, which came in lower than expected, has increased expectations that the ECB will not only cut rates in June, but also in July.
Tariff concerns will continue to circle the Eurozone for some time. Whilst EU negotiators may be more diplomatic in public than their US counterparts, they are just as determined to fight their corner. Despite this, the latest Organisation for Economic Co-operation and Development report states that it was expecting the euro area to expand by 1% in 2025, unchanged from its previous forecast. They project Eurozone inflation to come in at 2.2% this year, also in line with the March report.
There has been a concern that the good start to the year for Eurozone growth was propped up by front-loading of exports to the US ahead of tariff changes. However, the data from France does not suggest this happens, data from Spain suggests it was relatively small, and data from the German Federal Statistical Institute suggests exports were only one factor, with private consumption and investments also contributing.
US trade policy to date has not had as big an impact on Eurozone growth as many feared, but they may just take some time to materialise. EU goods exports to the United States represent around 20% of EU exports to countries outside the European Union, and only around 3% of the total EU economy. However, the indirect consequences of tariffs slowing global economic growth are very difficult to quantify.
Far East
Following trade talks in May, the US and China agreed to a 90-day pause to the retaliatory tariffs each country imposed in April. This created some breathing space for China’s economy and went some way to reversing the pessimism over growth forecasts which emerged in April.
Exports to the United States plunged by 21.0%, year on year, in April. At the same time, exports to emerging Asian markets rose by 22.0% year on year. This has inevitably raised questions about whether shipments of goods into the United States were simply being exported first to a third country for onward shipment so as to disguise its origins in China. Enforcement issues such as this were identified as fundamental flaws in Trump’s tariff policy in April.
Yields in Japanese 40-year government bonds hit an all-time high in May. This has heightened fears of further outflows from US bonds as Japanese investors move their money back home. Given Japan’s position as the world’s second largest creditor, there are concerns that this could have a knock-on effect domestically and on the global economy.
Emerging Markets
As we’ve stated several times, the impact of US tariffs on emerging markets varies considerably across regions and is dependent on a country’s direct trade exposures to the US through it’s exports, more indirectly based on the impact on its supply chains, and also their potential to benefit from the changes other countries and businesses make as they adapt to tariffs.
Africa’s exports to the US were around 1% of its total global exports. Mexico is far more exposed, with exports constituting around 27% of its GDP.
The pause on further tariffs in April helped emerging markets recover and make currencies less volatile. Domestic demand in some countries, notably India and Brazil, has been a contributing factor to some economic resilience. A weaker US dollar has also made it easier for emerging markets to service their dollar-denominated debt.
Conclusion
Whilst the world appears to have been restored to normality in May it is wise to remember that it’s a pause, not an end, to the trade turmoil we saw in April. Trump is still faced with a number of deep-seated economic problems, with a debt pile which needs to be renegotiated, and his One Big Beautiful Bill Act is going to be very expensive.
Even his election ally Elon Musk is vociferously against the bill. “This massive, outrageous, pork-filled Congressional spending bill is a disgusting abomination”, he posted.
The ride isn’t over yet.
And Finally…
Giraffes are 30 times more likely to get killed by lightning than people.
There were only five known fatal lightning strikes on giraffes between 1996 and 2010, but that’s 0.003 of the 140,000 giraffe population – which is 30 times the equivalent rate for humans.
If this blog has raised any questions why don't we have a quick chat?
MD & Certified Financial Planner
A brief meeting might be of interest, especially if you’re unsure just how wealth management and financial planning could help you.
It would only require the investment of an hour or so of your time, and the coffee’s not bad either.