CIM Market Update - May 2025

Trade Wars

• In a speech marking "Liberation Day", President Donald Trump announced sweeping trade measures: a universal 10 percent tariff on most US imports, 20 percent on goods from the EU, and 34 percent on all imports from China.

• Trump later introduced a 90 day pause on tariff increases for most countries. Currently, most US imports face a 10 percent levy, with steel, aluminium and cars taxed at 25 percent. In response to Chinese retaliation, the US escalated tariffs on Chinese goods to 145 percent, while China imposed 125 percent tariffs on US imports.

• The US labour market showed resilience, adding 228,000 jobs in March, well above forecasts of 135,000.

• On Truth Social, Trump urged Fed Chair Jerome Powell, whom he called “Mr Too Late,” to cut interest rates immediately.

• The UK economy grew by 0.5 percent in February, significantly above the 0.1 percent consensus, marking the strongest monthly growth since March 2024.

• UK inflation eased to 2.6 percent in March, down from 2.8 percent, largely due to falling fuel prices.

• The European Central Bank cut its benchmark interest rate to 2.25 percent, the lowest level since 2022.

• UK mortgage approvals fell to a six month low in February, ahead of April’s stamp duty increase.

• China’s BYD reported a 58 percent rise in first quarter EV sales, driven by strong domestic and international demand.

• The EU fined Apple 500 million euros and Meta 200 million euros for breaching competition rules.

  
  

April proved to be a turbulent month for financial markets, with elevated levels of volatility largely driven by developments in US trade policy. The month began with President Trump’s dramatic announcement of new tariffs, referred to as “Liberation Day”, which were broader and more punitive than markets had anticipated. This triggered an immediate sell-off in equities, while government bonds rallied as investors sought safer ground.

Interestingly, the US dollar, which is typically seen as a safe haven in times of market stress, also weakened. This was attributed to the perception that the US, at the centre of the trade tensions, might bear the brunt of the disruption. Investors rotated away from assets that traditionally benefit from so-called “US exceptionalism”.

Even before “Liberation Day”, some of the world’s largest investment banks, including Goldman Sachs and JPMorgan, along with ratings agency Moody’s, had already raised the probability of a US and global recession.

Market sentiment took another hit later in the month when President Trump publicly criticised Federal Reserve Chair Jerome Powell, whom he referred to as “Mr Too Late, a major loser”, and suggested he had the power to remove him. At the same time, he adopted a more aggressive stance toward China in ongoing trade negotiations.

However, as market pressure mounted, particularly as US Treasury yields began to rise sharply, the administration appeared to moderate its tone. Under what many believe was the influence of advisor Scott Bessent, President Trump scaled back the proposed tariffs, lowering them to 10% for 90 days for all countries except China. In contrast, tariffs on Chinese goods were increased as a punitive measure for their resistance. The US has now imposed tariffs of up to 145% on Chinese imports, while China has responded with tariffs of up to 125% on US goods. Markets subsequently recovered a significant portion of their earlier losses.

Toward the end of the month, Chair Powell acknowledged the economic risks posed by the tariffs, describing them as “larger than expected” and warning of “higher inflation and slower growth” as likely consequences. The International Monetary Fund (IMF) echoed this sentiment, cutting its global growth forecasts. US GDP growth was revised down sharply from 2.7% to 1.8%. The UK was not spared either, with its growth forecast cut by a third amid concerns about “extremely high levels of policy uncertainty”.

Bond markets were volatile over the month. US 10-year Treasury yields peaked at 4.6% before falling back to 4.2%, as markets priced in a growing chance of US rate cuts. It helped that US inflation data for March surprised on the downside, with headline inflation at 2.4% and core at 2.8%. In the UK, inflation fell to 2.6%, helped by lower fuel and food prices. This contributed to a fall in the yield on UK government bonds. The yield on the 10 year UK gilt ended the month at 4.4%.

Equity performance was mixed across regions. US equities underperformed, with the S&P 500 Index falling 4.1%. In contrast, Japanese equities, which had fallen earlier in the year, rebounded; the MSCI Japan Index rose 1.7%. European equities held up well, supported by currency gains, with the MSCI Europe ex UK Index up 1.4% as the euro strengthened 1.7% versus sterling. Chinese stocks staged a comeback after strong Q1 GDP growth of 5.4% helped offset initial losses from harsher-than-expected tariffs. Emerging markets generally proved resilient. UK equities ended the month broadly flat.

Meanwhile, oil prices dropped over 20% in sterling terms, hit by recession fears and OPEC’s decision to boost supply.

The outlook for US trade policy remains uncertain, and further volatility seems likely. However, April served as a reminder of the value of diversification across asset classes and regions, and of the importance of staying invested through turbulent periods.