Global markets: some calm, but the storm’s not over. The TPP weekend wrap.

Global stocks have a mixed week, but some calm has been restored.

The FTSE 100 in London finished the week down -0.48% even as The Bank of England reduced its base rate from 4.5% to 4.25% on Thursday.

The Bank of England cut interest rates by a quarter point to 4.25 per cent but stressed it was not on a preset path to further reductions, as it prepares for the impact of US President Donald Trump’s trade policy.

The BoE’s Monetary Policy Committee was split three ways over the decision, in a decision that came ahead of the announcement of a US-UK trade deal that London expects will limit the tariff hit on British exports. While Thursday’s quarter-point cut had been expected, the MPC’s insistence that it would retain “a gradual and careful approach” to additional rate reductions prompted traders to trim their bets on further rate cuts this year. “Interest rates are not on autopilot, they cannot be,” said Andrew Bailey, the BoE governor.

Traders are now pricing in two further rate cuts this year, with a roughly 30 per cent chance of a third, down from 80 per cent before the meeting, according to levels implied by swaps markets.

“This is a more divided MPC,” said Sanjay Raja, chief UK economist at Deutsche Bank. “The probability of sequential back-to-back rate cuts should drop on the back of this.” Although a majority of five MPC members supported the quarter-point cut, two favoured a bigger, half-point reduction and two wanted rates to stay at 4.5 per cent.

The pound rose above $1.33 after the vote, putting it in positive territory for the day. The yield on two-year gilt, which moves inversely to price and reflects interest rate expectations, was up 0.09 percentage points at 3.90 per cent.

We also got news of a trade deal with India followed by one with the US. The latter is key as it shows traders that the Trump administration really does want to make deals and sort out the mess it has created.

UK steel tariffs have been dropped, as have those on car exports but many of the details are still unknown, but at least it’s progress.

It said it expected the global trade tensions to reduce the level of UK GDP by just 0.3 per cent in three years’ time, a relatively small impact.

Europe

The pan-European STOXX Europe 600 Index ended 0.29% higher, rising for a fourth consecutive week amid hopes for an easing in trade tensions between China and the U.S. The two countries are meeting this weekend, although we doubt much information will come from it, but at least they’re talking.

Major stock indexes were mixed. Germany’s DAX gained 1.79%, and Italy’s FTSE MIB added 2.72%; France’s CAC 40 Index and the UK’s FTSE 100 fell -0.34% and -0.48% respectively.

German industrial production jumped 3% sequentially in March, significantly exceeding consensus forecasts. Manufacturers increased output ahead of the imposition of new U.S. tariffs. Factory orders increased 3.6% sequentially, after coming in flat in February.

Sweden’s central bank, the Riksbank, kept its policy rate at 2.25% while signalling a change in outlook that suggested easier monetary policy ahead. The bank abandoned its previous position on steady rates, indicating that there were more downside than upside risks since the March inflation forecast because of the uncertainty resulting from the new U.S. trade policy.

Meanwhile, Norges Bank left its benchmark rate at 4.5%, maintaining a cautious approach as inflation remains above the 2% target. "If the policy rate is lowered prematurely, prices may continue to rise rapidly," Deputy Governor Pal Longva said. "The committee's current assessment of the outlook implies that the policy rate will most likely be reduced in the course of 2025," he added.

The US

Major US stock indices finished the week fairly mixed. Small and mid-cap indices fared better, posting gains for the fifth consecutive week, while the Dow Jones Industrial Average fell modestly. The S&P 500 Index and the Nasdaq Composite dropped -0.47% and -0.27%, respectively.

Equities started the week lower, with the S&P 500 Index snapping a nine-day winning streak in a fairly quiet trading session on Monday. However, stocks recovered some losses on Wednesday following reports that U.S. and Chinese officials plan to meet in Switzerland this weekend for trade discussions, potentially paving the way for broader negotiations and tariff de-escalation. Stocks continued to gain through Thursday, buoyed by the US and UK’s announcement of the first new trade deal since the Trump administration’s reciprocal tariffs were unveiled on April 2, which helped fuel investors’ hopes of more deals to come.

On Wednesday, the Federal Reserve concluded its monetary policy meeting and announced it would be holding the fed funds target rate steady in the range of 4.25% to 4.50%, as was widely expected. In the Fed’s post-meeting statement, policymakers noted that “economic activity has continued to expand at a solid pace.” However, they cautioned that “uncertainty about the economic outlook has increased further” and “the risks of higher unemployment and higher inflation have risen.”

In a news conference following the meeting, Fed Chair Jerome Powell noted that, with regard to changing monetary policy, Fed officials remain in a “wait and see” mode as they continue to assess incoming data to determine the economic impacts of the Trump administration’s significant policy changes, particularly wide-ranging tariffs, which are “likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.” Powell also acknowledged that policymakers could find themselves in a “challenging scenario” in which the Fed’s dual-mandate goals—maximum employment and price stability—are “in tension.” The probability of a rate cut at the Fed’s next meeting declined during the week, according to futures markets tracked by the CME FedWatch Tool.

Asia

Japan’s stock markets gained over the holiday-shortened week, with the Nikkei 225 Index rising 1.83% and the broader TOPIX Index up 1.70%. The yen weakened past 145 against the US dollar, hovering around a one-month low as the greenback strengthened notably on the announcement of a US-UK trade deal and confirmation by China that its trade negotiations with the U.S. are due to begin.

The yield on the 10-year Japanese government bond rose to 1.35% from 1.26% at the end of the previous week, as safe-haven demand for JGBs dissipated on global trade optimism.

However, there were limited signs of progress in the ongoing bilateral trade negotiations between the U.S. and Japan. The U.S. warned that a trade deal with Japan could take significantly more time to complete than the framework agreement with the UK that was announced during the week. Japan is urging the U.S. to review its series of tariff measures, seeking the full removal of reciprocal tariffs (President Donald Trump imposed a 24% tariff on Japanese goods before the 90-day pause was announced) and the additional 25% levies on autos, steel, and aluminium. For the US, agriculture is likely to be a focal point, as it seeks to further open Japan to American agricultural products.

Mainland Chinese stock markets advanced in an abbreviated trading week ahead of U.S. trade talks. The onshore benchmark CSI 300 Index rose 2.00%, and the Shanghai Composite Index added 1.92% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index rose 1.61%. Markets in mainland China were closed on Monday, May 5, for the Labor Day holiday.

Chinese stocks rallied early in the week on news that US and Chinese officials would travel to Switzerland for trade talks over the weekend. An unexpected policy boost by the central bank also added to positive sentiment. On Wednesday, the People’s Bank of China reduced its seven-day reverse repurchase rate to 1.4% from 1.5% and cut its reserve requirement ratio by half a percentage point, a move that will release roughly RMB 1 trillion in long-term liquidity in the economy, the central bank governor said. The PBOC announced other loosening measures, including rate cuts on a range of relending tools and loans for policy banks.

The measures reflected China’s increased efforts to protect the economy after the Trump administration said it would hike tariffs on most Chinese goods to 145%. On Friday, China reported that exports to other countries rose a higher-than-expected 8.1% in April but were down from March’s 12% gain. U.S.-bound shipments sank 21% from a year ago after Washington imposed the tariff hike in early April. But exports to India, Southeast Asian countries, and the European Union soared as Chinese companies offset the U.S. sales drop with sales to other markets.

The Week Ahead

Company news from London-listed names continues at a pace in the coming week, including Aviva, ITV, National Grid, Burberry and Imperial Brands, while tailing off for the big US names.

News from the weekend's US-China trade talks is likely to drive markets in the early part of the week, with economic data including UK GDP and jobs, and US retail sales.

The other main event is US inflation. This has been a big driver of the market in recent months and traders will be waiting to see how the tariffs impact prices. While we may not see anything this month, the drip will begin soon, and there is no doubt that prices will start increasing fairly sharply.

No matter what happens next week, our traders will be looking for opportunities. Some of our long/flats have liquidated, taking some profits from recent positive moves, and some are still holding, waiting to see what happens next.

It’s a hard one to call, but regardless, the actively traded strategies brought to you by TPP will be ready. Our traders are in the markets all day, all night, and all week. If you’ve subscribed to a TPP strategy and already built a TPP portfolio, then you’ll have enjoyed the bounce back from the Trump induced lows.

Trump’s administration isn’t making it easy, but holding our nerve has meant most clients are now heading back up to recent highs.

If you would like more information on how you can build a bespoke TPP portfolio, please do contact us and one of our portfolio managers will be in touch.

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Disclaimer: The views expressed in this article are the author’s own and should not be considered in rendering any legal, business or financial advice. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions.

This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only.

Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to the corresponding past performance.

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