US tariffs continue to dominate

After taking centre stage during the 1st quarter of 2025, US Tariffs have continued to dominate the global economic outlook during the 2nd quarter. There has been a whole raft of on-off threats at differing tariff levels for different countries, but over the quarter these appeared to become more ‘settled’ as trade negotiations progressed. However, what is clear is that all countries are likely to end up with worse trading conditions with the US than previously. This point was highlighted by the very first trade deal announced by Donald Trump which was with the UK. Although the US had no ‘trade deficit’ with the UK to ‘correct’, we still ended up with blanket 10% tariffs on most goods. While lower than Trump was threatening to impose on many countries, it is still much higher than we had previously.

While impacting global economies, the US tariffs are also expected to weigh on the US economy. Figures out during this quarter showed that US GDP actually fell 0.3% in the 1st quarter. Although US spending and employment figures still seem to be holding up, there are signs of the tariffs weighing on the US economy. Surely this is an unintended consequence of Trumps tariff policy, as is rising US consumer price inflation, which went up again in June, to 2.7%.

Global stock markets reactions to all the tariff announcements at the beginning of the quarter were unsurprisingly negative. However, by the end of the quarter, all the main markets were in positive territory except for in China, which would be expected given the ongoing tensions with the US.

UK

Surprisingly, the best stock market returns came from the FTSE 250 index (up 12.5% over the quarter). This was far higher than the S&P 500 in the US, which was up 4.4%. The FTSE 250 index represents the more domestically based UK companies than the global companies that make up the FTSE 100 (up 3.2%). Its high performance suggests that global investors feel UK companies could benefit from the trade deal going forwards. Rising share prices of UK companies are certainly not down to the UK’s recent economic growth (figures available to the end of May) which has been poor over the quarter, with negative GDP.

UK Inflation has been heading up again with the latest annual figure rising to 3.6% for June (up from 3.4% in May). This is well above the Bank of England’s (BOE) 2.00% target, although they are currently still widely expected to reduce interest rates at their August meeting.

Relatively, the UK is still seen as an appealing place to invest on a global view. One Monday in June saw the busiest day for UK company takeovers this year, totalling over $10 Billion. Global companies are being drawn to buying UK companies due to relative political stability and low share prices.

Global picture

The general outlook is clouded by the ongoing US tariff rollout, which is far from concluded. However, the issue is slowly being resolved with more and more trade deals being announced and the global economy does seem to be weathering the impact of tariffs, so far. Obviously, things could change as Trump has proven to be unpredictable and subject to sudden changes of direction.

This has certainly been the case with his policy towards Russia and the war in Ukraine. Previously he was talking positively about his discussions with Putin and prospects for a cease fire, while being very critical of Ukraine and its President. However, more recently he has been vocally criticising the Russian President and being far more supportive of Ukraine, including increasing defence and weapons supplies. This does of course mean that there is no near term end to the war in sight, but at least Trump is becoming more aligned to the thinking of other western governments, creating some stability on that front.

Overall, the picture is not too bad. Global growth is holding up relatively well and interest rates are still on course to be heading down further, which is generally supportive of economic growth and also stock markets.

Sources: Reuters, Office of National Statistics, CNBC, Schroders.

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The comments made in this review represent our current investment views and are in no way a guarantee of future performance.