Trade deals come into focus

In the first half of 2025 all eyes were on the threat of very high US trade tariffs and their potential for causing trade wars and resultant economic shocks, particularly against China and the EU, due to their large global impact. However, as we moved into the third quarter and more and more trade deals were agreed, markets settled into a realisation that things may not end up as bad as the perceived threat. Although, all the trade deals announced included higher US Tariffs than each country would have previously had, they were lower than feared, allowing markets to breathe a sigh of relief. Stock Markets were strongly up over the quarter, especially in China/Hong Kong even though a Trade Deal there has not yet been agreed. Nevertheless, just the postponement of threatened tariffs and the end of Trump’s rhetoric against China while negotiations continue, was enough to encourage hope.

The agreed Trade Deal at the end of July, between the US and the EU was seen as a major comfort, especially as Trump had repeatedly talked so aggressively about trading with the EU. With trade between them accounting for almost a third of global trade, the agreement brought huge relief! The agreed 15% general tariffs, while higher than the UK’s, were half of the threatened 30% and mirrored the preceding major deal with Japan.

The Indian stock market was an outlier, being negative over the quarter. No doubt due to the absence of a trade deal being agreed with the US and Trumps ongoing additional tariff threats, due to India’s imports of Russian oil.

UK

Although the more globally focused FTSE 100 had another good quarter, being up 7.5%, the FTSE 250 which represents more domestically based UK companies, had a much more subdued return this quarter after a stellar performance in the previous quarter. This was not surprising, as UK economic news during the 3rd quarter was not great. Inflation continued to rise over the period, with the latest figure in September standing at 3.8%, nearly double the Bank of England’s (BOE) target of 2%. Although the BOE did cut rates during the quarter for the third time this year, due to the stubbornly high inflation, there is now more uncertainty over the speed of future rate cuts. However, weak economic data and rising unemployment may force the BOE’s hand to soon cut rates further, especially if the upcoming budget imposes another additional tax drag on the UK economy, as currently expected.

Despite some short term gloom, foreign investors still see opportunities in the UK. This was highlighted by the announcement of £150 billion investment in UK tech infrastructure by US companies, during Donald Trump’s September state visit.

Global picture

The general outlook is a little less clouded than earlier in the year by tariff uncertainty, now that many trade deals have been set. However, it is still unclear what overall impact the extra US tariffs will have longer term and where will be the most affected. While the intention is to raise revenue for the US and encourage firms to move production to the US, it is far from certain how successful this will be. In fact, with the tariffs causing trade alliances to shift, it could mean less trade with the US longer term and unintended benefits to other countries.

Whatever the outcome, it seems that the worst fears have been avoided so far, and the expected global economic impact will be less than the initial worse case scenarios may have suggested. This is certainly the view reflected by buoyant stock markets hitting new all-time highs around the word.

For a while there appeared to be some hope that Donald Trump’s August meeting with Vladimir Putin could lead to deal being struck over a ceasefire in Ukraine, with talk of a meeting between Putin and Zelensky. This would have helped lower oil and gas prices and reduce inflation pressures. However, that does now seem less and less likely, with Putin appearing to back away from any negotiations and the war intensity continuing.

Although inflation is proving sticky in the UK, globally the picture is better. Overall inflation has been getting nearer to Central Bank targets, particularly in Europe. Euro area inflation has hit 2%, in line with the European Central Bank’s (ECB) target!

Overall, the picture is still not too bad, despite all the upheaval that the US tariff introduction caused earlier in the year.

Sources: Reuters, Financial Express, BBC, 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.