The week that was …
Economic round-up
Trump tariff legal defeat
President Trump can keep collecting tariffs while the White House appeals against a Court of International Trade decision that the majority of tariffs would need Congress approval to go ahead. The court ruled that an emergency law invoked by the president did not give him unilateral authority to impose tariffs. Read more from the BBC here
IMF upgrades UK economy
The UK economy is forecast to grow slightly more than previously expected in 2025, according to the International Monetary Fund (IMF), with GDP projected to rise 1.2% this year and 1.4% in 2026. The IMF warned, however, the Chancellor must stick to her rules on tax and spending. Read more from the BBC here
US inflation
The Fed’s preferred measure of inflation has indicated prices rising more slowly than expected. The US personal consumption expenditures (PCE) price index for April showed core price growth of just 0.1% for the month, putting the annual inflation rate at 2.1%. Read more from CNBC here
China manufacturing weakens
China’s manufacturing activity shrank for a second month in May. The government is now expected to put more stimulus measures in place to support economic growth amid the country’s protracted trade war with the US. The official purchasing managers’ index (PMI) rose to 49.5 in May versus 49.0 in April – below the 50-mark separating growth from contraction. Read more from Reuters here
US consumer confidence
US consumer confidence improved in May in spite of ongoing uncertainty over the imposition of tariffs. Confidence had previously declined for five straight months to reach its lowest level since the onset of the Covid-19 pandemic. The Conference Board revealed the index rose 12.3 points in May to 98. Read more from the Guardian here
Revised US GDP
The second estimate for Q1 GDP showed economic growth to be declining by 0.2%. This was higher than the previous estimate of -0.3%. Read more from Adviser Perspectives here
Markets round-up
Trump eyes foreign investments
Wall Street is warning that a little-publicised provision in president Trump’s budget bill may allow the administration to raise taxes on foreign investments in the US. Section 899 of the bill would allow the US to impose additional taxes on companies and investors from countries it deems to have punitive tax policies. Read more from the FT here
Nvidia results
Nvidia’s share price rose despite mixed first-quarter results. The group said AI infrastructure demand remained robust but there would be an $8bn (£5.91bn) revenue hit from the US’s China export rules. HSBC analyst Ryan Mellor said the results “were good enough to avoid disappointment.” Read more from Yahoo Finance here
Dimon warns on debt
JP Morgan Chase chief executive Jamie Dimon warned that the US bond market could crack under the weight of the country’s rising debt. He said he had cautioned regulators and urged the US administration to put the country’s finances on a more sustainable path. Read more from the FT here
Japanese debt sees weak demand
An auction of long-dated Japanese government debt saw weak demand, prompting concerns over the sustainability of the world’s third-biggest bond market. The 40-year notes attracted a bid-to-cover ratio – the number of bids received against securities offered – of 2.2x, the lowest level since July 2024. Read more from the FT here
“The average dividend yield in the AIC Renewable Infrastructure sector is 9.7% while the average discount to NAV is a shade under 30%. Investors would not need very much to go right to see an attractive return on their money.
Selected equity and bond markets: 23/05/25 to 30/05/25
| Market | 23/05/25 (Close) |
30/05/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 4724 | 4760 | +0.8% |
| S&P500 | 5803 | 5911 | +1.9% |
| MSCI World | 3803 | 3863 | +1.6% |
| CNBC Magnificent Seven | 322 | 333 | +3.4% |
| US 10-year treasury (yield) | 4.5% | 4.4% | |
| UK 10-year gilt (yield) | 4.7% | 4.6% |
Investment round-up
M&G distribution partnership
M&G has announced a distribution partnership with Japanese insurer Dai-ichi Life, with the group becoming Dai-ichi Life’s ‘preferred asset management partner’ in Europe. M&G said it hoped the partnership would generate $6bn (£4.5bn) in net flows over the next five years.
Gam hires European equities team
GAM Investments has appointed a new European Equities team, who will manage the firm’s Star European Equity and Star Continental European Equity funds. Tom O’Hara, Jamie Ross and David Barker join from Janus Henderson and will maintain their style-agnostic, high-conviction approach.
Aberdeen’s Chong retires
Aberdeen Investments’ head of Asia Pacific equities Flavia Cheong is to retire from her role at the end of the year after a 30-year career with the firm. She will be succeeded by her deputy Pruksa Iamthongthong.
Supermarket Income restructures
The Supermarket Income Reit is to restructure from a closed-ended investment fund to issuing equity shares as a commercial company. The group said becoming a commercial company would be “more suited to a UK REIT with an internalised management structure and business strategy”.
Multi-asset US exposure doubles
UK-based multi-asset funds have more than doubled their exposure to US equities in the space of eight years, ending a lengthy period of home bias, according to data from Morningstar. In the 40–60% equity category, the average exposure to US stocks has more than doubled from 25% in 2017 to more than 50%.
… and the week that will be
European inflation and rates
Markets are betting another rate cut from the ECB – taking the key rate to 2% – is a sure thing. The bigger question appears to be whether the central bank will pause after that – and here this week’s inflation data may provide some clues. Inflation has been generally well-behaved, but the economy has been holding up better than expected. Read more from the Economic Times here
US jobs data
The latest poll of economists by Reuters forecasts an increase of 130,000 jobs in the US employment report for May. This would be a step down from growth of 177,000 the prior month and might suggest the impacts of the Trump tariffs are starting to ripple through the economy. That said, a very strong employment report could spook the market, raising inflationary pressures and decreasing the chance of further cuts to interest rates. Read more from Reuters here
The week in numbers
ECB rate decision: Consensus expectations are for a 25-basis-point cut on Thursday, taking the rate to 2%.
Eurozone inflation: Consensus expectations for the flash May reading on eurozone inflation suggest prices will rise 2.1% year-on-year, down from 2.2% last month – and 0.5% month-on-month, down from 0.6%.
US PMIs: Consensus forecasts indicate the US ISM manufacturing purchasing managers index (PMI) for May will rise to 49.6 – from 46.5 in April – while the services equivalent is expected to rise to 52 from 51.6.
China PMIs: Consensus forecasts suggests the China ISM manufacturing PMI for May will slip back into contraction territory at 49.5 – down from 50.4 in April – while the services equivalent is expected to drop to 50.4 from 50.7.
UK construction PMI: The index is expected to rise to 50.4 in May, up from 46.6.
US non-farm payrolls: The May payrolls in the US are expected to rise by 130,000 from 177,000, with the unemployment rate holding steady at 4.2%. Earnings are forecast to rise 0.2%, month on month, and 3.7%, year on year.
Company news: Half-year/quarterly earnings results expected from Broadcom, Chemring, HP, Lululemon, Mitie, Wise and Wizz Air
In focus: Power play
Outlining his exciting approach to UK government finances last week, Reform UK leader Nigel Farage argued the costs of reintroducing the winter fuel allowance, cancelling the child benefit cap and reinstalling the marriage allowance could all be paid for by pulling the plug on net zero.
It is not immediately obvious just how he and his advisers arrived at the figures involved, nor how a Reform UK government would claw back investments made by the private sector, but it is a vivid illustration of the type of rhetoric the renewable energy infrastructure sector is up against.
Until relatively recently, renewable energy infrastructure trusts were uncontroversial. They invested in wind or solar farms, or batteries, picking up a regular, inflation-adjusted cashflow and paying a strong dividend. The case for the gradual replacement of fossil fuels with renewable energy appeared well-made. In 2019, these trusts saw the strongest issuance of any investment trust sector, accounting for almost a quarter of issuance from existing trusts that year.
Since then, a barrage of issues have hit the sector – the first being higher gilt yields. The UK 10-year gilt has risen from near-zero at the start of 2021 to its current level of 4.7%. Even though inflation has moderated, it has proved persistently high so, by comparison, the yields on offer from the trusts no longer look as appealing.
“A lot of the problems have been down to interest rates, which has hurt investor sentiment,” says Ross Driver, fund manager at Foresight Solar. “We have seen the sharpest spike in interest rates in a generation as we have not seen hikes of this magnitude since the late 1970s.
“Renewables companies had benefited from being high-income options. Having been delivering 8% to 10% over the gilt yield, that differential has been eroded. The 10-year gilt is now at 4.7% and there is no obvious way that it is coming down.”
Underneath the surface, many of these trusts are doing what they always have – buying up renewable energy-generation infrastructure at various stages of development, generating energy and selling it on.”
Next up is the more nebulous problem that net zero has become an improbable culture war issue. Taking its lead from the US, Reform, among others, have made net zero a universal culprit for the social and economic problems faced by the UK. The lack of political consensus around the energy transition remains a destabilising force and is another factor weighing on sentiment.
This combination of factors has brought about an extraordinary sell-off in the sector. The average dividend yield in the AIC Renewable Infrastructure trust grouping is currently 9.7% while the average discount to net asset value (NAV) is a shade under 30%.
At the extreme end, you can find the US-exposed SDCL Efficiency Income, with its 14% yield and 52% discount – yet even trusts without any obvious vulnerabilities, such as Gresham House Energy Storage or Octopus Renewables Infrastructure are trading at an 8% or 9% yield and a 30% or so discount. Investors would not need very much to go right to see an attractive return on their money.
Underneath the surface, many of these trusts are doing what they always have – buying up renewable energy-generation infrastructure at various stages of development, generating energy and selling it on. Many of them also have an income from tax credits and so, notes James Carthew, head of investment companies at QuotedData, even where there is distress, the discounts look far too wide.
“For SDCL, its main problem is that over half of its assets are in the US, where the regime is hardly renewables-friendly,” he says. “The trust’s more established projects should be fine but a couple of investments are focused on developing new projects and life may be tougher for them. It also has a diverse range of investments, which makes it less likely to be a bid target.
“Nevertheless, efforts are underway to sell all or part of the trust’s stake in US solar developer Onyx and the EVN electric vehicle-charging business in the UK. Realising assets at or close to NAV, reducing gearing and funding buybacks could help stem the discount widening”.
It was amazing how quickly long-duration assets were hit when the interest rate cycle turned, even though the NAVs stayed firm. There is now a lot of latent value across the sector.”
James Calder, chief investment officer at City Asset Management, also believes the space should prove a happy hunting ground for dividend seekers. “These trusts generally have index-linked, government-backed cashflows,” he points out. “With base rates at zero, they were very attractive assets, but it was amazing how quickly long-duration assets were hit when the interest rate cycle turned, even though the NAVs stayed firm. There is now a lot of latent value across the sector.”
Calder and other shareholders are pushing the trusts’ boards to ensure value is fully realised. There have been mixed results so far, he says – with some boards very proactive and others less so – but the consolidation in the sector is starting. Foresight has bought a portfolio of battery storage assets from Harmony Energy Income trust, for example, while Riverstone Energy has announced plans for a managed wind-down.
There are activists in the sector too. While the high-profile Saba Capital has thus far steered clear, newly-launched Achilles has expressed an interest, saying it will target up to five trusts in areas such as property and infrastructure.
Foresight Solar’s Driver believes the sector would benefit from consolidation, adding: “With the level of paper out there, consolidation is a no-brainer. Our board has been on the front foot, going out there and looking to consolidate.
“Investors say they want scale and we believe there are quite significant synergies that can be achieved. This could deliver quite a significant re-rating for the sector.” Foresight Solar put out a recent trading statement, noting it had discussions on a tie-up, though these had not progressed as yet. For his part, QuotedData’s Cardew says the newly enlarged local authority pension schemes should also prove a source of demand. “They would make ideal owners of operational UK wind and solar assets,” he argues.
The dividend yields, in general, appear relatively safe – in the Foresight fund, for example, 50% of its revenues are contracted. “Most of the renewables funds operate a similar model,” says Driver. “They have a level of subsidy and guaranteed income and then the other half is selling the energy generated. Most of the funds will forward-fix those prices.” He adds that some of the energy demand has dropped, but most funds have locked into decent prices –[and it is also worth noting plenty of funds in the sector are buying back shares. For its part, Foresight has bought back around £50m.
Other factors would help – for example, a drop in the 10-year gilt yield is possible, should interest rates come down further. And, while the UK government is generally supportive, more clarity on certain elements of the regulation would be helpful, including the grid reorganisation and which projects are in and out. Some political consensus on the direction of travel would also improve confidence. In the meantime, though, investors are being paid handsomely to wait it out.
Read more on this from the AIC here and from QuotedData here
In focus: Tariffs twist
Markets rallied last week as the US Court of International Trade ruled Donald Trump had overstepped his authority when introducing his wide-ranging tariffs. The court held the International Emergency Economic Powers Act of 1977 used to impose the majority of the tariffs did not allow for such extreme measures without approval from Congress. This included the blanket 10% import tax as well as the higher ‘reciprocal’ tariffs.
The suit had been brought by a group of small businesses and a number of US states. While the ruling brought the usual bombast from the US administration, it briefly appeared that the majority of the tariffs might simply disappear, with only Trump’s tariffs on cars, steel and aluminium – implemented under a separate law – remaining. The money collected would need to be repaid with interest, according to the ruling.
This always seemed unlikely to derail this key pillar of the Trump agenda and on Friday, an appeals court ruled the president could keep collecting import taxes – at least for now. The case will now be litigated, with the next hearing taking place on 5 June.
The case looks set to end up in the Supreme Court, says Lizzy Galbraith, senior political economist at Aberdeen. “At stake is the extent of the tariff authority Congress has conferred to the presidency over time,” she adds. “Nevertheless, the ruling has significant implications for countries that were in trade negotiations with the US. Many are likely to wait for clarity on whether the block on tariffs is maintained before making big concessions. As such, the ruling undercuts Trump’s negotiating leverage.”
Even if the ruling is upheld, Galbraith continues, the administration will have alternative routes to implement tariffs, noting: “These will be slower and more targeted, however, as opposed to the current sweeping approach.
One example, offered by Anthony Willis, an investment manager at Columbia Threadneedle, is that Trump could call on the Trade Act of 1974. “This was designed to enable the president to impose temporary tariffs to address ‘large and serious United States balance of payments deficits’,” he explains. “Section 122 of this act gives limited powers to impose tariffs of up to 15% for up to 150 days before seeking further authorisation from Congress.”
Willis also points to the Tariff Act of 1930, which empowers the president to impose tariffs if US business are suffering “unfair discrimination” at the hands of a foreign power. Those tariffs, however, are capped at 50%.
Ultimately, says Willis, the “persistent uncertainty will continue to weigh on corporate decision-making and investment, prolonging the headwinds to economic growth.” Against such a backdrop, it is perhaps surprising stockmarkets are cheering this latest twist in the Trump-world saga. It is yet another sign their exuberance is looking increasingly irrational.
Read more on this from Politico here and from Reuters here
