EQUITY MARKETS CHILLED BY TARIFFS BUT TOO EARLY TO SOUND THE ALARM OVER US SLOWDOWN

• Standard

Data Sourced from FE Analytics, and Bloomberg Finance LP

EQUITY MARKETS CHILLED BY TARIFFS BUT TOO EARLY TO SOUND THE ALARM OVER US SLOWDOWN

This week there has been further fallout from US tariffs. As China and the European Union retaliated with their own tariffs, the US threatened to escalate tensions with further big increases. US equities led many global markets down and sectors which are exposed to tariffs have seen more big share price moves. A more cautious atmosphere helped push up the price of gold. Government bond yields have also been volatile as a more defensive approach pushed yields up, only for weaker US inflation to revive some speculation that rates may be cut more aggressively.

In addition to the confusion caused by US trade policy, there is concern that the US economy is slowing. But despite some quirks in the short-term US data, the US economy has not changed that dramatically in the last few weeks. Stretched valuations in some sectors have been called into question, but most large cap stocks continue to grow earnings. Consumer sentiment has weakened a little, but the jobs market is still fairly robust and wages are rising. Trump’s policies are likely to cause further disruption but the US economy has not become a basket case overnight.

GLOBAL: EQUITIES UNSETTLED BY TARIFFS AND US ECONOMIC GROWTH

Global equity markets fell as uncertainty about US tariffs and concerns about the strength of the US economy sapped investor confidence. China and the European Union responded to US tariffs by imposing additional duty on selected imports this week. During a TV interview, President Trump also appeared to concede that his policies could cause a recession this year. US equities fell steeply as technology stocks, in particular, felt the effect of the downturn in sentiment. The S&P 500 fell 2.7% on Monday and the Nasdaq index fell 4%.

Better US inflation numbers helped settle markets mid-week, but equities resumed their slide after the Trump administration threatened further tariffs of up to 200% in response to the EU and Canada’s countermeasures. Spanish, German and French equity markets are on track for a drop of 3% or more this week. UK equities have also declined but a relative lack of action against UK trade helped the FTSE 100 outperform most developed markets.

US: DOLLAR FALLS AS INFLATION EASES

US inflation eased more than expected in February. Headline inflation fell from 3% to 2.8%, helped by the cost of housing rising more slowly. Core inflation (excluding food and fuel costs) also fell in February as the annual rate slipped from 3.3% to 3.1% as services inflation continued to slow.

Lower inflation has slightly eased the pressure facing the Federal Reserve as it balances persistent inflation with signs that US economic growth is slowing. Investors have slightly increased their forecast for the number of interest rate cuts in 2025 and this helped the value of US government bonds. Uncertainty in equity markets saw an influx of money into bonds, pushing yields down, but this was short-lived. The dollar fell slightly against the euro and the pound. Meanwhile, European Central Bank president Christine Lagarde warned that the central bank will find it harder to meet its 2% inflation target as global tariffs and higher government borrowing add to uncertainty in the short term.

EQUITIES: GOVERNMENT SPENDING BOOSTS INFRASTRUCTURE FIRMS

UK infrastructure firms are feeling the effect of higher government spending. Balfour Beatty announced a £125m share buyback plan and increased its dividend due to better full year profits. It benefited from transport and energy infrastructure projects in the UK, and US revenues increased 27%. Shares in Costain Group rose as it doubled its dividend after full year profits increased 10%. It reported a strong pipeline of contracts for 2025 and expects profits and revenues to increase this year.

Higher US and European revenues helped Keller Group increase full year profits by 22% as it raised its dividend and launched a share buyback scheme. Brickmaker Ibstock struggled last year, but its shares rallied this month as it forecast stronger trading as house construction activity picks up. The construction and materials sector has outperformed the wider market over the last year. This sector is considerably smaller than the UK housebuilding sector but it has sustained its outperformance far better in recent months.

For more information regarding our weekly market reports, we encourage you to give us a call on 01732 746188 or send us an email at enquiries@foxgroveassociates.co.uk.

This document has been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. Financial Express Investments Ltd, registration number 03110696, is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit https://www.fefundinfo.com/en-gb/about/legal-and-policies/.