STOCKS – To summarise, global stock markets are trading just about at all-time highs and roughly 25% above the April low’s when markets sold off dramatically on Trump’s Liberation Day tariffs. Why such a dramatic recovery after a dramatic fall?
Well, Trump did not fully follow through with the tariffs and trade deals where quite quickly agreed with many, but not all, countries. The tariff levels are lower than the higher tariffs threats e.g. the UK agreed a 10% tariff, the EU 15%. Deals were also agreed with China and Japan. The global stock markets assumed a TACO attitude – Trump Always Chickens Out i.e. once he saw the damage he was doing to financial markets he didn’t follow through on his rhetoric.
So, the stock markets no longer think we will have a tariff induced global recession and the economic figures indicate that the US economy has slowed but not collapsed in any way. Furthermore, inflation in the US has not really risen as feared from the tariffs – i.e. if tariffs go up on foreign goods imported into the US that
– makes supply chains more expensive
– allows US producers to raise their prices as foreign goods are now more expensive
…this hasn’t really happened, at least, not yet.
So, US stock markets are up
Non-US stock markets are also up as tariffs seem manageable.
BONDS
Bonds yields (remember bond yields and prices have an inverse relationship – yields up = prices down) are in the middle of recent ranges. 10-year US government bond 4.32% annual Yield-to-Maturity or Rate of Return.
With the prospect of a mildly slowing (inflation no problem) US economy, the market predicts cuts in US interest rates from the current 4% over the next 12 months. This is supportive of both stock and bond prices.
UK Government Bonds/GILTS – worth mentioning that long dated (30-year maturity) UK gilts are trading at a 25-year yield or interest rate high at 5.50%. This is mainly because of the UK public finances /level of debt concerns. With a slow UK economy = no revenue in tax for the government. With spending running high – the Government will have to issue plenty of bonds (increased supply forces prices down/yields up) to finance these spending plans and to pay all the interest on its existing debt. Not good.
