by James Thompson FPFS
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Well, who knew so much could happen in a single week!
In 21 years of wealth management – I cannot recall such ‘self-inflicted’ disruption and uncertainty.
A quick recap on the week:
- Wednesday 2nd April: tariffs announced
- Thursday 3rd April: world markets react unfavourably to unexpected high level of proposed tariff and bewilderment at the simple calculation method. Some margin is given to reflect the general belief that negotiation/mitigation would occur
- Friday 4th April : US admin rhetoric that no negotiation/mitigation will take place. China/EU and others react with proposed retaliatory tariffs
- Monday 7th April: Volatility continues, an inter-day bump up on rumours of a tariff pause quickly denied. Capitulation on stock prices.
- Wednesday 8th April: Reciprocal tariffs paused for 90 days for all, except China. Markets react favourably, recovering lost ground
- Thursday 9th April: Some favour fades, realisation that some level of tariff still in place
At the time of writing (11th April), it feels somewhat like being back at where we started last week prior to the announcements, albeit with the extreme movements in the interim, which simply helps to reinforce the ‘keep calm’ and wait for the markets to regain some logic and sense.
We were fortunate to be in conversation with a prominent asset manager Chief Investment Officer (CIO) some weeks back and he foresaw that whilst the US administration was engaged in bullying tactics on many fronts, the one entity they were unable to bully was the ethereal ‘bond market’, which had the power to influence policy decisions at this level.
Investors in the UK market have experience of the power of the bond market, resulting in the rapid demise of the brief and disastrous Liz Truss-led UK administration.
Trump admitted to monitoring the US bond market and ultimately, despite the different rhetoric, it is largely accepted that this gave rise to the U-turn on the extreme element of the tariff policy.
Many investors focus on the equity markets, with the bond markets in the background – however, it is the bond markets that can disrupt the normal functioning of government when bond yields rise and hence why it can be so influential on fiscal policy.
It must be remembered that not all tariffs have been paused. The flat rate of 10% stays in place and those against China have been increased to extraordinary levels. The rate on autos, steel and aluminium also remain at elevated levels. This would lead us to deduce that we remain within an extraordinary period of policy transition, albeit in a seemingly more-favourable position than earlier in the week.
We will continue to remain calm and very close to events. We have Investment Management Committee (IMC) meetings brought forward to next week and will continue to search out threat and opportunity in equal measure.
As our newsletter outlined – short-term headlines shouldn’t derail long-term plans.
