Global stock markets have been strong in June rebounding from levels 20% lower a couple of months ago. The sharp falls triggered by Trump’s Liberation Day tariffs and fears the impact on global trade could lead to a global recession justifying a stock market rout. But with many countries in trade tariff negotiation with the US and a deal agreed with the UK and one in broad principle with the EU, markets have become a lot less concerned about the tariff issue justifying a strong stock market rally. Reasonably strong US employment data over the last couple of months has also lessoned the concern around tariffs slowing trade and job growth. Consequently, the US S&P 500 and the tech focussed NASDAQ are back to all-time highs.
The US Dollar remains weak however, having lost some of its reserve currency status and concerns over a loose US fiscal policy. The later not helped by Trump’s ‘Big Beautiful Bill’ which came into law on July 4th – US Independence Day. The BBB contains roughly $4.5 trillion in tax cuts. There is a lot of unpopularity with the bill as it seems to give tax cuts for the wealthy and a reduction in benefits for the poorest of society – the wealthiest families will enjoy an average of $12,000 in tax savings, while the poorest people will have to pay an additional $1,600 a year, on average, mainly due to reductions in Medicaid and food aid.
The markets like some aspects of the BBB i.e. the tax cuts but the cuts and extra spending on defence will lead to significant extra borrowing by the US Treasury questioning the government’s ability to repay that debt which may well keep an upward pressure on US interest rates / bond yields. This fiscally loose approach is also a reason for continued US Dollar weakness.
The Oil price remains subdued just below $70 per barrel with the global economy showing only moderate growth. Gold remains a few hundred dollars below its recent all-time-high trading now at $3,250 per ounce. It will need a renewed global crisis or lower interest rates to push the price higher.
With Trump at the helm, it is likely markets will stay quite volatile but we are unlikely to see the volatility and market collapses of his Liberation Day tariffs again this year.
