Market Commentary 8th April 2025 – from Charlie Hancock

Newsflow from the US was the main driver of market movements last week, with President Donald Trump announcing significant tariffs on imports from most other nations. Concerns about the impact on economic growth contributed to a gloomy mood amongst investors. Trump announced that all imports from the UK would be subject to a tariff of 10%.

Purchasing Managers’ Index (PMI) data for the UK showed that the services sector experienced stronger than expected growth during March. The manufacturing sector continued to struggle, with activity contracting at a faster pace than the previous month.

UK property listing website, Zoopla, reported that house price growth flatlined during February. The Bank of England (BoE) also reported that demand for mortgage borrowing fell during the month, with the number of mortgage approvals reaching the lowest level seen since August 2024.

The Trump administration announced on Wednesday that imports to the US from the European Union (EU) would be subject to tariffs of 20%. The announcement was harsher than expected and prompted significant volatility in European equity markets during the second half of the week.

Headline consumer price inflation in the Eurozone slowed to 2.2% in March from the 2.3% recorded for February, which fuelled expectations for the European Central Bank (ECB) to cut interest rates again in April. The ECB’s President, Christine Lagarde, stated that the uncertainty around trade policy would make it necessary to take a cautious approach regarding inflation. Lagarde added that the tariffs announced by the US would clearly have a negative impact on the world and the US economy.

The series of tariffs announced by President Donald Trump on Wednesday were significantly higher than expected. Trump also left world leaders with little time to negotiate, stating that the tariffs would take effect from 9^th April.

The announcement sparked fears of a prolonged trade war with major trading partners and investors appeared concerned about the possible impact on economic growth and corporate profits. Trump announced that all imports from China would be subject to a tariff of 54%, which fuelled fears of higher inflation in the US, given that a significant amount of US consumer goods are sourced from China.

Investors are likely to pay close attention to newsflow regarding trade negotiations in the coming days. The Trump administration is reportedly hopeful that it will be able to draw up new trade deals with more favourable terms for the US.

China-US relations deteriorated quickly following Donald Trump’s announcement of 54% tariffs on Chinese imports. China announced it would impose tariffs of 34% on all imports from US with effect from the 10^th April. Policymakers in Beijing also implemented measures to restrict the export of rare earth materials and added 11 US defence companies to an ‘unreliable entity’ list. The escalating trade war prompted expectations for Beijing to ramp up fiscal stimulus efforts in the coming months.

Japanese equities struggled last week amidst a rally in the Japanese yen, with export heavy companies having a significant weighting in Japanese stock market indices. The Bank of Japan (BoJ)’s governor, Kazuo Ueda, stated that tariffs are likely to exert downward pressure on growth in Japan, which prompted expectations for the BoJ to delay their next interest rate hike.

Government bond yields across the developed world moved lower as investors reduced their exposure to riskier assets and increased their exposure to fixed income investments.

Expectations for the ECB to cut interest rates by 0.25% at their April policy meeting rose last week as investors reacted to Donald Trump’s announcements. If the proposed tariff rate of 20% on EU imports into the US takes effect, it is expected this would negatively impact Eurozone growth, which would likely prompt the ECB to stimulate the economy via looser monetary policy.

Concerns around tariffs slowing US economic growth appeared to push treasury yields lower, given the potential need for further Federal Reserve interest rate cuts.

GBP / EUR – Current 1.1766 Previous 1.1954

The Pound declined by 0.41% against the US Dollar last week, with currency traders concerned about the impact of tariffs on the UK economy. Against the Euro, the Pound fell by 1.57%. The Euro strengthened against most major currencies as Eurozone leaders appeared unified regarding the potential response to US tariffs.