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China and the US announced a “total reset” for trade last week - a sudden de-escalation of their tit-for-tat tariffs. Details of the talks held in Switzerland were complex but essentially see US lower tariffs on Chinese imports from 145% to 30%, and Chinese tariffs on US goods from 125% to 10%. However, the US said some reductions were suspensions rather than permanent cancellations. President Trump also suggested tariffs might rise again in three months’ time if further talks don’t go well. Investors and businesses will hope the moves are permanent as sky-high tariffs were starting to considerably slow factory output in China, with a marked drop in the number of ships arriving at US ports from China.

Despite this apparent thawing of trade relations, China did express concerns about the UK-US trade agreement announced the previous week. The deal means the UK will adhere to US demands on supply chain security when it comes to steel and aluminium products exported to America. China’s concern is that China could be excluded from supplying US-bound goods to the UK. The UK government stated that there was "no such thing as a veto on Chinese investment" in the deal reached with the US.

The UK’s economy grew faster than anticipated in the first quarter of 2025, a welcome boost for the Chancellor and Labour government. Figures released by the Office for National Statistics showed UK GDP rose by 0.7% from January to March, up from 0.1% on the previous quarter. UK growth was led by a 1.1% increase in production output (driven by UK manufacturing), rebounding after three consecutive quarterly declines. The services sector, which makes up the largest share of the UK economy, expanded by 0.7%. The UK is currently the fastest-growing G7 economy in 2025, outpacing the likes of the USA, Germany and Japan. However, the outlook for the remainder of 2025 is more cautious. Rising utility and council tax bills, along with increased employer costs, are expected to weigh-down growth through the rest of the year. 

The animal spirits of US equity investors were unleashed on news China and the US had stepped back from the brink - for now. The S&P500 gained +5.3% on the week, with a strong showing from the ”Magnificent 7” tech stocks. However, equity trading floors in Europe were more subdued, and moves in other asset classes suggest investors’ initial enthusiasm gave way to caution:

• the US 10-year Treasury yield initially rose to ~4.5% before settling around 4.4%
• the gold price fell to ~$3,120 per ounce before rallying back above $3,220
• the Dollar Index, which measures the value of the greenback against a basket of currencies, jumped by 1.5% before giving up its gains

Major equity markets have now recovered their post-Liberation Day lows. Investors are hoping for more certainty on tariffs. Then the US Fed might resume cutting interest rates to ease credit conditions – and investors’ animal spirits can perhaps reassert themselves.

The annual US inflation rate dropped to 2.3% in April from 2.4% in March compared to the same period last year. That’s despite it increasing by 0.2% between this March and April. If US and China can stick to their current tariff agreement - or improve on it - the US Fed may be able to resume cutting interest rates in the coming months as originally hoped. However, economists are cautious as the Fed still expects inflation to rise due to the impact of import duties.

The latest inflation figure was mainly due to a drop in services prices, including hotels and airfares. On a monthly basis, energy prices increased due to higher natural gas and electricity costs offsetting the decline in gasoline prices. Finally, US retail sales rose by 0.1% in April following an impressive surge in March. The small gain suggests US consumers are being frugal in response to Trump’s tariffs.

Seventeen workplace pension providers – including Aviva, Legal & General, Phoenix Group, and Royal London – have signed the “Mansion House Accord” to invest more in private markets. The initiative may drive better returns for pensioners and boost UK growth. The signatories have committed to invest 10% of their assets in infrastructure, property and private equity over the next 5 years. A minimum of 5% must be invested in the UK which could boost the economy by £25bn, according to the government. Some providers have already indicated that they may exceed these targets. However, the agreement is voluntary and pension providers only have to report their progress to the government. The Chancellor expects more investment into UK growth sectors – such as clean energy and innovative smaller companies. Further details will be revealed in the final report of the Pensions Investment Review around the end of Spring 2025.

• The UK government now owns less than 1% of Natwest’s equity and it will soon have fully sold its shareholding
• President Trump reportedly secured $600 billion of Saudi investment into US companies during a tour of Gulf states. AI chip deals such as Nvidia and AMD may be set to benefit
• EVRI and DHL announced merger to become a UK delivery giant
• The US lifted sanctions on Syria and urged it to join the Abraham Accords aimed at improving Arab-Israeli relations
• Brazil’s interest rates hit 14.75% - a 20-year high – on a high inflation and weak growth outlook

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