Personal Wealth Management Monday Espresso Podcast

Monday Espresso Podcast - 12th May 2025

00:00:00] Sheldon MacDonald: It's the 12th of May. We've had quite a busy period on the economic front, but in counterpoint to that, actually, markets were fairly flat last week.

[00:00:09] Rory Dowie, you're joining us today, give us the recap.

[00:00:13] Rory Dowie: Yeah, so as you said, markets were fairly steady last week, flat to marginally up across the boards, US, Europe, Hong Kong, and China were really within that range.

[00:00:22] We obviously had progress on the trade deal front. On Thursday we saw the announcement between the UK and the us so that was taken positively by markets.

[00:00:31] But really the big news was the US and China agreement, which we got over the weekends.

[00:00:35] Sheldon MacDonald: Let's come to that in a second, we'll talk about that, that's obviously the big news as you say.

[00:00:40] Let's just finish recapping what else we saw last week. So you mentioned US UK trade deal, you said taken positively by markets, but my taken is actually a fairly muted response.

[00:00:51] Similarly, we had the rate cut here in the uk that was kind of as expected as well, and a fairly muted response. And then we had the Fed, they met last week.

[00:01:00] The outcome of that was that there was no change in rates.

[00:01:03] Rory Dowie: Yeah, absolutely, much to Donald Trump's dismay he's been pushing Jerome Powell to, you know, to make a, a rate cut.

[00:01:09] But actually, you know, they kept rates as they were and Jerome Powell continued to make hawkish comments that is, you know, restrictive around monetary policy and really Trump's been making his job quite difficult over the last, last couple of months.

[00:01:21] And you recall if we rewind a couple of weeks, there were rumors that Trump might be getting rid of Jerome Powell as chair.

[00:01:25] He's decided against that now, so it's a little bit tit for tat in terms of some of the commentary.

[00:01:29] I think the one thing that I would highlight outta that, the Fed meeting was the probability of an interest rate cut for next month, so in June, that probability's now fallen 24%. Previously it was more likely than not, but now the market's only assigning a 24% probability of that.

[00:01:45] Sheldon MacDonald: Yes, and the trade deal with China, that might take that probability down even further. But let's just stick with Jerome Powell for the moment, the tight rope that he's having to walk at the moment.

[00:01:54] So we are facing these recessionary risks in the market, and on the back of that, you'd expect him to be dropping rates.

[00:02:00] On the other hand, he's also faced with inflationary forces, in particular from from tariffs, and in the face of inflation, you hike rates. So what's a guy to do?

[00:02:10] Rory Dowie: I mean, spot on there Sheldon is exactly that. He's really stuck between a rock and a hard place, to be honest. You know, on the one hand, he wants to get inflation down, but obviously these tariffs are going to be inflationary as the price of imports will be rising. That will likely lead to higher prices for the end consumer, which obviously will help to drive inflation.

[00:02:26] Then on the other hand, there's so much uncertainty. His dual mandate, he has to keep the economy going, inflation low so again, he just needs some more clarity and I think that's really the the kind of word we need to focus on here.

[00:02:37] And hopefully over the next few months if we continue to get trade deals, his life may be marginally easier.

[00:02:41] But at the moment he really is just stuck between a rock and hard place.

[00:02:44] Sheldon MacDonald: So you mentioned clarity, and have we seen a change in tone from the US in the big news, which is the US China trade deal, or at least the 90 day pause on the tariffs.

[00:02:56] Are we getting a sense that actually the US would rather prefer the disruption that such moves would cause?

[00:03:02] Just to recap, so we had this announcement that there'd be a 90 day pause. How do you think that leaves us?

[00:03:08] Rory Dowie: It's obviously good news. You know, I think if we look over the last sort of month or two since we've had the tariffs, really the whole China and US trade relations has been the kind of area where we've seen kind of escalation has been tit for tat in terms of putting up the tariffs.

[00:03:22] So really deescalation there is a massive step forward. When you think about the, the types of companies importing and exporting out of both nations, there's so many supply chains in China, really that's the real positive.

[00:03:33] So the announcement over the weekend, you know, they would temporarily lower the tariffs on each other's products.

[00:03:37] US would be reducing the levies from 145% down to 30%, and China reducing its duties down from 125% to 10%. So you can see there from those numbers, that's a real big deescalation.

[00:03:51] And you know, we have that for three months and hopefully that gives. Both nations time to work to a more permanent solution.

[00:03:56] If you look at the market reaction in the futures market on Monday, it seems risk assets are behaving very well.

[00:04:01] It seems that, you know, in early Monday trading in, in the pre-market, the S&P is up about 3% or so, so good news, and the market's taken it well as well.

[00:04:09] Sheldon MacDonald: The market is taking it well, as you say, the bond market somewhat more cautious. No real follow through in the bond market in terms of a positive reaction.

[00:04:18] And perhaps that's a question of, well, are we out of the woods yet?

[00:04:21] So there is still this uncertainty about whether this 90 day moratorium will become something more permanent, but there's still also the question that actually will 10% blanket tariffs across the board and 30% of China, that's still negative relative to where we were at the start of Trump's presidency.

[00:04:39] So recession fears do remain. So let's take a look at the week ahead. Earnings season.

[00:04:45] Rory Dowie: Yes. You know, so far, so good. I think we're about 80% of the way through in the US now. As we mentioned in the last couple of weeks, trailing earnings have been coming in ahead of expectations.

[00:04:53] So December 24 to the end of March, earnings has been tracking about 12% growth, year on year versus the 6% of market had been expecting.

[00:05:01] But obviously that's not including any of the tariffs.

[00:05:04] We have seen guidance be a little bit soft, so again, companies aren't too sure how the tariffs are going to play out, so there's a huge amount of uncertainty still. So we'll be watching that in the earnings that are remaining this week.

[00:05:14] We also have some macro data, particularly inflation data for April, so that's gonna be very interesting as well.

[00:05:20] As well as some jobless claims and retail sales. So again, we should be getting some of a better update in terms of what's been going on.

[00:05:26] It wouldn't surprise me as well, potentially if we get some more trade deals announced, obviously. Trump has been talking if that number, he's been negotiating with 17 nations.

[00:05:35] We've had the UK, we've had relative improvements in the China relations, so yeah, we would expect maybe in the next, you know, couple of weeks to have some more progress there.

[00:05:42] Sheldon MacDonald: As always, plenty to keep us interested and we look forward to talking to you about it all again next week.