Market Commentary 13th May 2025 – from Naigil Johnson

The UK welcomed UK-US tariff deals last week with key changes including reducing tariffs on UK cars exported to the US from 27.5% to 10% and the 25% tariffs on UK steel and aluminium imports to the US being eliminated. Although the Chancellor, Rachel Reeves, described it as a “good deal” it was stated that the government would “continue to negotiate in other sectors”.

The Bank of England (BoE) voted 5-4 to reduce the Bank Rate by 25 basis points to 4.25%. Two members advocated for a larger cut to 4%, while two others voted to hold rates at 4.5%. The Bank’s governor, Andrew Bailey, stated that the rate cut was driven by lower inflation, but he cautioned that inflation is expected to rise later this year.

The Halifax House Price Index rose 3.2% compared to the same month last year, up from the revised 2.9% growth in March and exceeding expectations. On a monthly basis, house prices went up by 0.3%, contrary to the anticipated 0.1% drop, with the average property price in the UK increasing in value to £297,781.

Germany’s trade surplus expanded to €21.1 billion in March 2025, rising from a revised €18 billion in February and surpassing the forecast of €19.1 billion. This marks the largest surplus since last December. Exports increased by 1.1% month-on-month to an 11-month high of €133.2 billion in March, exceeding the expected 1% growth, primarily due to higher sales to the US and China.

Retail sales in the Eurozone declined more than expected in March, with sales decreasing by 0.1% over the previous month. Eurostat reported the drop, noting that rapid inflation and rising interest rates continued to erode disposable incomes, affecting households’ purchasing power.

It appeared that investors were assessing the news flow around trade negotiations, with US and Chinese officials scheduled to meet in Switzerland. Investors were watching closely for signs of any potential de-escalation in the trade conflict. Markets are likely to react positively to any potential removal of the previously imposed US tariffs of up to 145% on Chinese goods.

The Federal Reserve voted to keep their benchmark interest rate unchanged, resisting pressure from President Trump to lower US borrowing costs as policy makers assess the economic impact of his trade policies. Policymakers highlighted that economic uncertainty has increased, with rising risks of both higher unemployment and inflation. It appears that officials are taking a cautious approach due to concerns that President Trump’s tariffs could lead to higher inflation and slower economic growth.

The increase in most Asian equities appeared to have been driven by optimism that the worst of President Donald Trump’s trade war may be over. This sentiment follows Trump’s trade agreement with Britain and his suggestion to reduce tariffs on China. Officials from the US and China are set to engage in high stakes talks over the weekend.

China’s exports surged by 8.1% year-on-year to $315.7 billion in April 2025, significantly surpassing market expectations of a 1.9% increase. However, this growth represents a notable deceleration from the 12.4% rise in March, which was the fastest since last October. The slowdown is attributed to reduced shipments to the US, impacted by President Trump’s tariffs and the ongoing uncertainty in trade negotiations between Washington and Beijing.

Japan’s household spending increased by 2.1% year-on-year in March 2024, rebounding from a 0.5% decline in the previous month and surpassing market expectations of a 0.2% rise. This marks the strongest growth since December, primarily contributed by a third consecutive rise in utility spending due to colder weather.

GBP / EUR – Current 1.1825 Previous 1.1745

The Pound posted gains against both the US Dollar and the Euro, rising by 0.26% and 0.68% respectively. Sentiment on the UK amongst currency traders appeared to improve following the Bank of England’s (BoE) decision to implement a fourth consecutive interest rate cut since rates peaked at 5.25% last year.