The week that was …
Economic round-up
World economy faces ‘pivotal moment’ – BIS
Trade tensions and fractious geopolitics risk exposing deep fault-lines in the global financial system, the Bank for International Settlements (BIS) said in its latest assessment of the world economy. Agustín Carstens, the outgoing head of the BIS, noted trade wars and policy shifts were fraying the long-established economic order. Read more from Reuters here
US inflation
The Personal Consumption Expenditure Price (PCE) index, the Federal Reserve’s preferred inflation gauge, rose 0.1% – in line with last month’s increase. This puts the annual inflation rate at 2.3% and was largely in line with expectations. Excluding food and energy, core PCE posted respective readings of 0.2% and 2.7%, slightly ahead of expectations. Read more from CNBC here
UK business sentiment
The UK services PMI came in ahead of expectations at 51.3 for June – up from 50.9 in May – while the Manufacturing equivalent was also ahead of expectations, at 47.7. The figures show a sustained recovery in private sector output after the brief dip seen in April. New business volumes returned to growth after a six-month period of contraction. Manufacturers saw another export-led decline on order books, mainly attributable to US tariffs, rising geopolitical uncertainty and intense price competition. Read more from S&P Global here
US business sentiment
The flash US Services PMI index showed a reading of 53.1 in June – down from 53.7 in May and below expectations. The equivalent Manufacturing index held at 52, unchanged month on month. While US business activity continued to grow, it lost a little momentum to remain well below the levels seen late last year. Falling exports of goods and services acted as a drag on growth – in part offset by stock-building by US companies, often linked to concerns over tariffs. Read more from S&P Global here
US consumer confidence
US consumer confidence unexpectedly deteriorated in June as households became increasingly worried about job security. The trigger has been economic uncertainty surrounding the Trump administration’s tariffs. Lower confidence was seen across all age cohorts and nearly all income groups. It was also across the political spectrum, with the largest decline seen among Republicans. Read more from Reuters here
German business confidence
German business sentiment continues to improve, with leading indicator, the Ifo index, increasing for the sixth consecutive month. It registered 88.4 in June, up from 87.5 in May and the highest level since last summer. Read more from ING here
Markets round-up
‘Insiders’ sell Nvidia
Nvidia ‘insiders’ (directors and other corporate connections) have sold more than $1bn (£730m) of the company’s stock over the past 12 months as the share price has climbed to record highs. More than $500m of those share sales have taken place in June. Read more from the FT here
US markets hit new highs
The week ended with the S&P 500 and Nasdaq hitting all-time highs as investors raised bets that interest rates would fall in response to the softer US economic data and dovish comments from some Fed officials. Traders are now leaning towards three quarter-point rate cuts this year. Read more from Reuters here
BoE pressure to halt bond-buying
The Bank of England is under pressure to scale back its bond-selling programme, with investors warning it could push up borrowing costs. The central bank is undertaking a programme of ‘quantitative tightening’ – shrinking the portfolio of bonds accumulated during bursts of quantitative easing over the past decade and a half. Read more from the FT here
Trump on Powell
Apparently channelling his inner Kevin Keegan, Donald Trump said on Friday he would “love” if Federal Reserve chair Jerome Powell were to resign, adding he thought he had done a “lousy job”. The president also said he wanted interest rates cut to 1%. Read more from Reuters here
“In reality, risk may be building all the time. Valuations move higher and higher until the elastic snaps and the safe asset no longer looks safe.
Selected equity and bond markets: 20/06/25 to 27/06/25
| Market | 20/06/25 (Close) |
27/06/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 4765 | 4793 | +0.6% |
| S&P500 | 5968 | 6173 | +3.4% |
| MSCI World | 3882 | 4009 | +3.2% |
| CNBC Magnificent Seven | 333 | 349 | +5.1% |
| US 10-year treasury (yield) | 4.38% | 4.29% | |
| UK 10-year gilt (yield) | 4.54% | 4.51% |
Investment round-up
Tillit platform to close
Investment platform Tillit has announced it will shut down after failing to secure adequate funding to continue operations. Chief executive Felicia Hjertman who left Baillie Gifford to found the company in 2019, added: “Given the current challenging funding environment, unfortunately, we have been unable to secure the funding we need to continue to operate the business, and therefore have made the difficult but necessary decision to wind down the company.”
Liontrust’s AUM falls
Liontrust Asset Management saw a decline in profits and assets under management (AUM) for the year to 31 March 2025, but maintained it was “well placed to take advantage of a new environment” for active managers. The group’s adjusted pre-tax profits dropped to £48.3m – from £67.4m the previous year.
Fed Hermes launches short-dated global bond fund
Aiming to help investors maintain a lower exposure to interest rate and credit risk, the newly launched Federated Hermes Global Short Duration Bond fund will focus on credit opportunities at the shorter end of the yield curve.
Shard Capital launches MPS range
Shard Capital has launched a range of investment strategies, the Permanent Portfolio range, including risk profiles from cautious to steady growth and is available to clients of IFAs across the UK and internationally.
Warehouse and Tritax Reits to merge
Warehouse Reit has accepted a £485m takeover offer from Tritax Big Box Reit, walking away from a previous deal with Blackstone agreed in early June. Tritax’s cash-and-stock offer values Warehouse at about 114.2p per share versus Blackstone’s offer of 110.6p per share.
RBC Brewin Dolphin expands MPS range
RBC Brewin Dolphin has added seven new strategies to its managed portfolio service range, providing a blend of active and passive funds to keep costs lower. The strategies will charge between 0.26% and 0.27% depending on risk level. Rebalanced monthly, the expanded range will be available across 18 platforms.
… and the week that will be
US rates insights
This week sees speeches by Federal Reserve chair Jerome Powell and Fed committee member Raphael Bostic, which may give greater insight into the central bank’s thinking on rate cuts in the US. Donald Trump has been vocal in his criticism of Powell, raising concerns around bank independence. He has said he will not appoint anyone to head the Federal Reserve who would not lower interest rates from where they are, adding he wants rates to go as low as 1%. Read more from Reuters here and from the FT here
US budget bill concerns
President Trump wants to see his ‘Big Beautiful Bill Act’ passed by Friday, 4 July. Worries around the bill remain, with fears it will blow out the US deficit still further. This week also provides crucial insights into the US economy, with monthly employment data due on Thursday. The US stockmarket has remained buoyant thus far but could start to take notice if the economy shows signs of significant weakening. Read more from Reuters here
The week in numbers
US non-farm payrolls: US payrolls numbers are forecast to be 100,000, down from 139,000 in May, while the unemployment rate looks set to hold at 4.2%. Average hourly earnings are expected to be 3.9% year-on-year and 0.2% month-on-month, compared with 3.9% and 0.4% previously.
German inflation: CPI prices in Germany are expected to be 2.2% higher year-on-year in June, up from 2.1%, and 0.2% month-on-month, up from 0.1%.
China business sentiment: China’s manufacturing activity, as reflected by the country’s PMI, is expected to rise to 50.4, back in expansion territory, from 49.5; while non-manufacturing activity is forecast to rise to 50.5, from 50.3.
Eurozone inflation: Headline inflation is expected to rise to 2% from 1.9% year-on-year, and 0.3% month-on-month from 0%. Core CPI is forecast to rise to 2.4% year-on-year from 2.3%.
In focus: American rethink?
The Trump administration’s ‘pause’ on reciprocal tariffs is set to end on 9 July – the prospect of which could usher in a new round of volatility in financial markets. In particular, it could prompt asset allocators to reconsider their weighting in US assets after their strong recovery in recent weeks. At heart, the big question facing investors is, Are the expectations built into US assets still too high, making them ripe for a fall?
Investors are still in the foothills of recalibrating their allocation to the US. The latest Calastone survey showed flows into US equities were weak in May: at £115m, it was their second-weakest month since September 2023. Global funds, which also tend to have high weightings in the US, were around a third of their three-year monthly average, meanwhile – though they are still positive. The jump in share prices enjoyed by the US technology giants since Trump pressed the ‘pause’ button on tariffs has deferred the decision for many investors.
Their allocation to the US remains the most important decision for many investors. All the major global equity indices are heavily weighted to the US – as are, albeit, to a lesser extent, most major global bond indices. Any move away from US assets exposes investors to significant active risk- but, of course, a decision to maintain index weightings in the US brings risks of its own.
On the plus side, as Monday Club explored last week, the US economy has weathered the storm pretty well so far. Markets appear to be expecting President Trump to back away from tariffs once again – the so-called ‘TACO’ trade, as in ‘Trump always chickens out’. Certainly, his ability to impose tariffs may be constrained by recent legal decisions that suggest that tariff decisions need to go through Congress.
Equally, the US remains a capitalist powerhouse. “Many people underestimate the power of the US constitution to impose checks and balances,” points out David Coombs, head of the multi-asset team at Rathbones. “Corporate America still has power and there is also the power of capitalism within US culture – its technological strength, its lack of regulation. Will that end because Trump is playing around with tariffs? US companies are so adaptable. To suggest that US exceptionalism is at an end is a leap.”
Coombs’s view is that the next Apple or Nvidia is not obviously emerging anywhere else and he adds: “There has been 150 years of US exceptionalism and we do not see that unravelling.” In the wake of Liberation Day, while others were shifting assets elsewhere, he took the opportunity to buy high-quality US companies.
The big catalyst could be these European pension managers, whose beneficiaries are all in euros, starting to lose money relative to euro-based assets.”
Furthermore, US assets have shown an astonishing ‘bouncebackability’ – for example, the CNBC Magnificent Seven index is up 37% since its lows in April. At the same time, US treasuries have enjoyed greater stability – at least at the shorter-dated end. The 10-year treasury yield now stands at 4.3% – around 50 basis points below its peak for the year to date – and, while there had been concerns that longer-dated debt was becoming more difficult to sell, the most recent 30-year treasury auction saw good demand.
The big problem for non-US investors is the dollar. The benchmark DXY index continues to drop – it is down 10.4% year to date – with no signs of a floor. Over the past week alone, the index is down 1.5%. This means that UK and European investors have a drag on their investments.
Until recently, says Simon Evan-Cook, manager on the VT Downing Fox Funds range, the dollar was a reliable safe haven – particularly during periods of instability in the Middle East. Its appreciation versus sterling makes it more of a liability, however, and he has therefore reduced dollar exposure significantly across the Downing Fox portfolios. “At its peak, our exposure was as high as 50%,” he notes. “Now it is 5%.” Instead, he is holding euro and yen.
This dollar weakness could well influence fund flows. “European pension fund managers may have 70% of their European pension assets in the US and they do not want to be the last one out,” says Alec Cutler, manager of the Orbis Global Balanced fund. “They may be leaking it out because of what is going on in currency markets. The big catalyst could be these European pension managers, whose beneficiaries are all in euros, starting to lose money relative to euro-based assets.”
Evan-Cook also believes the apparent safety of US assets could now prove illusory. “Assets that have performed well for long periods of time can be seen as defensive because of their low historic volatility,” he explains. “However, this can drive more and more flows into a single asset class, increasing the risk. In reality, risk may be building all the time. Valuations move higher and higher until the elastic snaps and the safe asset no longer looks safe.”
There is a more fundamental question too – the extent to which ‘US exceptionalism’ has been a function of stimulus.”
For his part, Mark Preskett, senior investment consultant at Morningstar, says there are questions over the future outlook for the index heavyweights. “Some of the largest companies in the US index have benefited from globalisation,” he continues. “The growth may not be sustained. For Nvidia, for example, there is a question over whether it can deliver 50% to 70% growth in this new environment.” Valuations for many US companies are still ‘priced for perfection’ so, even if they continue to grow, their share prices could still deteriorate.
There is a more fundamental question too – the extent to which ‘US exceptionalism’ has been a function of stimulus. Cutler believes the superior growth rates in the US can largely be attributed to the vast stimulus seen in the US economy since Covid. This helped create a self-reinforcing cycle, whereby the US looked exceptional, so the rest of the world funnelled more money into it.
“Estimates are that between $13tn and $20tn have come into the US market” he points out. “That is what has made it exceptional – it is just a massive amount of momentum. There is a decent shot that the tide could go back out.”
Both Cutler and Evan-Cook believe this could happen far faster than many expect – over a matter of months rather than years. Cutler also maintains the old arguments put forward in favour of US companies – that they are capital-light, with superior productivity – may not hold so true at a time when many of them are making vast investments in AI.
The present case for US assets is wobbly, to say the least. Certainly, the US economy has proved resilient and US equities have bounced back impressively. The pain, however, is now being borne by the currency, which will hurt returns for non-US investors. The weighting of US assets across major equity and bond indices has not diminished and so remains a major risk factor as the tariff war reignites.
Read more on this from M&G here, from Rathbones here and from S&P Global here
In focus: Oil and inflation
Oil prices are dropping again after Iran and Israel ceased hostilities. The price for Brent Crude spiked to $74 at the height of the recent conflict, but is now back at $65 – almost in line with its lowest level since Russia’s invasion of Ukraine. There are, however, lingering fears the ceasefire will not hold and higher oil prices could dent fragile progress on inflation.
Higher oil prices raise inflation through two channels – directly via energy consumption and indirectly via higher producer costs and second-round effects, which can include wage increases and shifting inflation expectations. A recent Federal Reserve paper covering 27 advanced economies showed direct energy consumption accounts for just over 60% of the initial impact, with indirect effects making up the rest. Emerging markets and net energy importers are more exposed.
According to Raphael Olszyna-Marzys, international economist at J. Safra Sarasin Sustainable Asset Management, academic studies show a 10% rise in the oil price typically lifts headline inflation by about 0.4 percentage points after a few months. “The effect is larger for net oil importers, as well as for emerging markets – ranging from 0.6 to 1.5 percentage points compared with 0.3 to 1.0 percentage points for more advanced economies,” he continues.
“Among advanced economies, the pass-through tends to be larger and more persistent in Europe than in the US. While most research has found the sensitivity of inflation to movements in the oil price has declined over time, this has changed again in Europe after the 2021/22 broad energy shock, likely reflecting stronger sensitivity of core inflation to gas and electricity price shocks.” He believes another oil shock would likely slow down the pace of rate cuts.
For their part, the team at Oxford Economics play down the impact on global growth, arguing: “By early next year, the higher oil price reduces the level of global GDP by just 0.1 percentage point, meaning annual GDP growth both this year and next is only fractionally below our baseline forecasts of 2.4% for each year.” The group does not believe a spike in the oil price would prompt a change in the probable gradual downward path for policy rates.
While a re-escalation of tensions in the Middle East would be unwelcome for a host of other reasons, investors do not necessarily have to fear its impact on inflation or the global economy. Equally, its impact on central banks’ interest rate decisions should prove only marginal. There seem likely to be far more important factors to watch in the weeks ahead.
Read more on this from Charles Stanley here
