Week ended July 11, 2025: more tariff chatter, investors say "meh"

With the script becoming ever-more predictable, investors are continuing to sweep aside potential risks on the horizon associated with slower economic growth and weaker corporate earnings, both courtesy of the global trade war that the U.S. started several months ago.  President Trump is once again up to his old tactics of threatening to impose punitive tariffs on a variety of countries (by the new deadline of August 1st), including some countries in which bilateral trade involving the U.S. is almost negligible.  He has even threatened a punitive 50% blanket tariff on Brazil for political reasons, a country with which the U.S. actually has a trade surplus.  

 Rightly or wrongly, investors are largely ignoring the blustery rhetoric from Mr Trump regarding trade, as they believe that the administration will continue to have their back – just as occurred in early April – should markets once again wobble.  I can’t help but feel that this overarching complacency might not end well, but clearly I am in a minority as stocks hover near record highs.  Truth remains in bonds though.  Yields remain elevated as pressure continues related to the uncertain effects of tariffs on inflation and the increase in funding requirements of the U.S. government in the months and years ahead courtesy of the “big beautiful bill”.   The Fed remains in a bit of a quandary, too, as economic news continues to suggest a gradually slowing but reasonably solid U.S. economy, accompanied by slowing albeit still-above-target inflation.  Anyone that has an inkling of knowledge about economics should be grateful that the Fed, and most other central banks in developed markets, are both independent and run by intelligent professionals with at least some common sense (as opposed to politicians, with the U.S. being the primary example at the moment). For my U.K. readers, this past week was not the best for our island country, with the combination of negative GDP growth for the second month running (May -0.1% MoM, following April -0.3% MoM), and growing attention paid to the precarious state of U.K. government finances weighing heavily on sentiment.  The commodities/energy-heavy FTSE 100 is of course above it all, marching to its own beat with commodities companies pulling the index to a record intraday high as Mr Trump’s 50% tariff threat on copper brought forward demand, pushing copper prices (and commodity company stocks) sharply higher.  The Labour government is between a rock and a hard place, needing to close its budget gap.  Recall that unlike the U.S., the U.K. (and most other countries for that matter) is unable to mortgage its future for a better now.  Rather, a series of tax rises and / or expenditure cuts is most certainly coming.  The concept of a wealth tax was even mentioned this past week in the U.K. press, which would certainly worsen the current situation of wealthy folks waving “sayonara” to the U.K. as they seek more tax-friendly countries to relocate.  This coming week will bring the start of yet another earnings season, as well as important economic data including inflation (CPI, PPI) and retail sales data in the States.  And of course, the always interesting but largely ignored (for now) antics of Mr Trump’s trade policies will carry on, keeping investors on their toes.  

MARKETS LAST WEEK

In spite of the trade war ratcheting up a few more notches last week, U.S. stocks investors largely said “meh” for reasons I have discussed already.  Yes, U.S. stock indices were marginally lower on the week, but they are continuing to hold on to nice gains over the last month.  As has been the case most of this year, global stock indices performed better than U.S. stocks, aside from the Nikkei 225 which got hit by the Trump Administrations threat of a new 25% tariff on Japan effective August 1^st.  Of  course, as investors have discovered, these “deadlines” rarely matter.  US Treasury yields were higher at the intermediate and long end of the curve, with the yield on the 30-year U.S. Treasury (re)approaching 5%.  Most of the widening occurred on Friday, with a tariff-heavy week punctuated Friday by the announcement of new 35% tariffs effective August 1^st on Canada, related to reciprocal tariffs and the flow of fentanyl from Canada into the U.S.  Credit spreads were also slightly wider towards the end of the week, as bond investors again signal potentially more trade-related turbulence ahead.  With inflationary fears of tariffs and the effect on the Fed’s hawkish approach to monetary policy, the Dollar strengthened on the week.  Not surprisingly, haven asset gold also strengthened.  Oil prices were also better, in spite of the apparent signalling by OPEC+ of a ramp-up in production.  Lastly, the ultimate risk-on asset Bitcoin took off like a rocket last week, rewarding its diehard believers with new all-time highs.

The tables below provide a summary of last week’s market performance. 

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