Following recent market turmoil, which saw the VIX (volatility) index reach one of its highest points this century, we saw a stabilisation in risk assets this week.
Read this article to understand:
- Market performance and key economic news this week
- Why trade news and a hawkish Federal Reserve are overshadowing the global market recovery
- How we are positioning multi-asset portfolios
As of Thursday morning, equity markets had broadly delivered positive returns for the week, with the UK’s FTSE 100 up by nearly four per cent, and emerging market and Japanese equities also posting a positive return. Global equities are roughly flat so far this week.1
Falling inflation in the UK, US and Europe was well received, with the UK Consumer Prices Index (CPI) below consensus estimates at 2.6 per cent year-on-year, down from 2.8 per cent in February, driven largely by falling petrol prices.2
The week started well, with news of possible US reciprocal tariff exemptions for phones and electronic goods coming from China. However, the market recovery was soon overshadowed by fears of returning inflation, hawkish Federal Reserve (Fed) sentiment and the continued risk of US, and potentially global, recession.
The US dollar remains under pressure following a significant fall
The US dollar, the world's most important currency (over half of international trade is conducted in dollars) typically benefits from a “flight to safety” during volatile markets. But it remains under pressure following a significant fall since the tariff announcement.3
Fed chair Jerome Powell highlighted not only that Trump’s tariffs had been “significantly larger than anticipated”, but also that the correlated economic effects are likely to be stagflationary (slowing growth while increasing inflation).4
While President Trump continues to pressure the Fed to cut rates, his administration’s policies have placed the central bank in a “wait and see” mode, following a series of cuts in the second half of last year.5
Outlook
Despite the pause to tariffs, risk assets remain under significant pressure as investor sentiment stays cautious. Soft economic data from the US reflect this.
Powell’s comments have magnified uncertainty in the markets, and broad risk-off sentiment continues.
We are likely to see ongoing instability in investment markets pending the arrival of more economic data and – of course – news on President Trump’s tariffs.
Our positioning in multi-asset portfolios
In portfolios where we have active discretion, we have maintained a more defensive tilt aiming to provide protection for investors in this volatile and uncertain environment.
We remain underweight equities, specifically in the US and Europe. Meanwhile, we have structured our active fixed income positions to be sheltered from rising long-end US bond yields, preferring exposure at the five-year point of the Treasury curve.
We continue to monitor the situation on an ongoing basis to ensure the portfolios remain positioned appropriately. While cautious, we are still looking to add value in the prevailing environment where we have active discretion.
As longer-term investors, it is important to remain calm in these volatile and uncertain times. We continue to be confident that financial markets can provide the growth required by investors to meet their long-term goals.
