Markets continued to digest the endless news flow on global tariffs, while Nvidia provided further indications of the resilience of company earnings in the first quarter of the year.
Read this article to understand:
- The big stories impacting financial markets this week
- The outlook for financial markets from here
- Our multi-asset portfolio positioning in the current environment
Market review
On Friday May 23, President Trump surprised markets by announcing plans for a 50 per cent tariff on European Union imports and a 25 per cent tariff on foreign-made smartphones, targeting companies like Apple and Samsung. The announcement led to a decline in global stock markets. The German DAX fell by 1.5 per cent and the tech-heavy Nasdaq by one per cent on the news.1
The 50 per cent tariff on EU goods was delayed until July 9
The 50 per cent tariff on EU goods was set to come into effect on June 1. Market jitters somewhat eased when President Trump announced over the weekend a delay until July 9. Market reaction was positive, with the German DAX rising close to two per cent on Monday. Although US markets were closed due to Memorial Day, the S&P 500 played catch up on Tuesday, May 27, rising by 2.1 per cent.
In parallel, markets waited with bated breath for Nvidia to release its quarterly earnings on Wednesday night. They did not disappoint, even in light of the uncertainty around tariffs, with Q1 revenue coming in at $44.1 billion, a 69 per cent increase year-on-year and close to $1 billion ahead of analyst expectations.
On Thursday, a US federal court blocked the implementation of President Trump’s tariffs, stating they exceeded presidential authority under the 1977 International Emergency Economic Powers Act. Markets reacted positively, but by the evening, a US Court of Appeals temporarily paused the ruling, reinstating the tariffs. The saga looks set to rumble on.
Following last week’s spike in long-dated US Treasuries, with the US 30-year Treasury breaking through the five per cent barrier, this week has seen yields in general fall back slightly. On the other hand, Japanese long-dated bond yields have come under pressure on the back of weak demand for a 40-year bond sale as investor concerns around the sustainability of Japan’s massive debt load continued.
In other news, Bitcoin hit an all-time high this week and was trading at $105,800 by Friday morning, while gold continued to slide in the current risk-on environment.
As of the morning of Friday, May 30, global equity markets were positive for the week, up around 1.5 per cent in local currency terms, the only regional detractor being emerging-market equities.
Outlook
Market volatility is likely to persist as investors assess the broader economic implications of evolving US policy
The outlook from here will hinge on developments in trade negotiations, inflation trends, central bank policy and future corporate earnings. Market volatility is likely to persist as investors assess the broader economic implications of evolving US policy.
Although investment markets have reacted positively of late to news-driven events, uncertainty persists. They will have to continue navigating a complex macroeconomic landscape while reacting to ongoing trade negotiations that will have divergent impacts on countries and regions.
Our positioning in multi-asset portfolios
In portfolios where we have active discretion, we maintain a small overweight allocation to European and emerging-market equities, due to improvements in short-term market sentiment.
We maintain overweight positions in UK and German government bonds
In equities, we recently introduced an overweight position in UK midcap companies relative to UK large caps. A closer relationship with the EU presents an opportunity for mid-caps, which have underperformed large caps for some time.
Within fixed income, we have structured our active positions to be less sensitive to rising bond yields at the long end of the US Treasury curve, favouring exposure at the five-year point. We maintain overweight positions in UK and German government bonds, reflecting our expectation of continued rate cuts from central banks in the regions. We are underweight French government bonds due to the country’s more precarious fiscal situation and political instability relative to the rest of Europe.
In currency markets, based on our outlook for ongoing dollar weakness, we still hold a long position in the Japanese yen versus the US dollar.
We continue to monitor the situation to ensure the portfolios remain positioned appropriately. While cautious, we are still looking to add value where we have active discretion.
