Review of the past quarter

Equity markets shrugged off the sell-off caused by US president Donald Trump’s extreme US tariffs. The liberation day tariffs announced in early April generated fears of recession and triggered selling in US and global equity markets. There was also volatility in global bond markets. However, the most damaging tariffs were suspended and signs of negotiations major trade partners relieved markets. The relief rally continued into June, with some markets, including the US, clocking record highs.

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Eurozone equities gained slightly on the back of more defence and more infrastructure spending. In addition, investors have been diversifying away from the US, spooked by the White House’s erratic policy making. UK stocks were compartively steady, owing to the defensive nature of the market. Japanese equities experienced high volatility, owing to Japan’s significant exports and strong trade ties with the US.

Emerging markets gained as a weaker dollar allowed central banks to cut rates. Latin America and Asia-Pacific markets gained the most and Indian stocks reversed first quarter losses. China lagged as concerns about trade and a weak property market offset better domestic consumption.

Government bonds performed well as risks from government policy and geopolitics increased their appeal. The Bank of England lowered rates as it walked a fine line between supporting a cooling jobs market and high but slowing inflation. Corporate bonds remained insulated from the turmoil and performed well with less volatility than government bonds.

Asset Class Returns

Cash	Government Bonds	Index Linked Bonds	Corporate Bonds
+0.82%	+1.94%	+0.86%	+2.70%
UK Equities	Overseas Equities	Emerging Markets	Alternative Assets
+4.39%	+5.10%	+5.48%	2.02%

The Actuarial View

The likelihood of recession has eased slightly as there appears to be limits to the Trump administration’s willingness to endure a full-blown trade war. The most punitive tariffs have been suspended, though the shadow of more tariffs still lingers. Even so, US tariffs are still at their highest in 100 years, bringing the potential to act as a damper on global growth. Meanwhile the US Federal Reserve is likely to remain cautious as the US economy is showing its resilience, whilst the Bank of England may continue to cut rates as UK growth is weak and the jobs market shows signs of cooling.

Sentiment has soured towards the US and international investors are increasingly opting to diversify by putting asset to work in the EU, welcoming increased German fiscal spending and policy stability. Equities continue to have a better outlook compared to bonds, where the narrative around unsustainable fiscal spending and high government debt continues to outweigh high investor demand. Cash is likely to prove attractive for more cautious investors in this environment as its returns continue to outstrip sticky but falling inflation.

This post is the opinion of Velarium Wealth and contains a document produced by FE Investments that we feel is relevant at the current time. This document has been prepared for general information only and is not guaranteed to be complete or accurate. It does not contain all of the information which an investor may require in order to make an investment decision.