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What has happened
Last week was dominated by two concurrent themes at work in markets: first, in Germany and in turn washing over much of continental Europe, 10-year government bond yields rose over the week, following plans by the country’s politicians to launch a huge German fiscal package plan (for defence and infrastructure spending) that could be put to a parliamentary vote perhaps as soon as this week; second, last week saw continued US trade tariff volatility, U-turns, and general levy uncertainty from US president Trump, hitting investor confidence. The US S&P500 equity index led last week’s stock market declines, posting its biggest weekly decline in six months, falling -3.10%, while the pan-European STOXX600 equity index dropped -0.69% over the week, both in local currency price return terms. Looking forward to the week ahead, after a largely inline US jobs report last Friday, the focus for markets this week will be the latest US consumer inflation report which is due out on Wednesday.
China’s inflation picture flatlines
The latest reminder of China’s economic problems landed over the weekend. China’s headline (all items) Consumer Price Index (CPI) inflation report registered a -0.7% year-on-year fall, coming below consensus estimates that had been looking for an annual fall of -0.4%, and deteriorating sharply from last month’s positive +0.5% annual print; it was the first consumer deflation print in over a year, since January 2024. As for China core CPI (which strips out energy and food prices), this saw a year-on-year drop of -0.1%, the first annual decline in over 4 years, since January 2021, and only the second time it has contracted in the past 15 years. If there had been hopes of some respite in the Producer Price Index (PPI) figures also out, that was lacking as well – with the annual China PPI inflation reading down -2.2%, and weaker than the -2.1% expected.
Canada has a new Prime Minister
Former Bank of England governor Mark Carney was elected the new leader of Canada's Liberal party over the weekend, succeeding Justin Trudeau who announced his resignation back in January. Carney won 85.9% of the party membership vote, and by winning the party leadership context, it makes him Canada’s new prime minister. Carney wasted no time taking aim at criticising US president Trump and who will likely prove a key issue ahead of Canada’s general election that has to take place on or before 20 October this year; Carney said of Trump, “there's someone who's trying to weaken our economy … he's attacking Canadian workers, families, and businesses. We can't let him succeed … this won’t be business as usual … we will have to do things that we haven’t imagined before, at speeds we didn’t think possible … make no mistake, this is a nation-defining moment.”
What does Brooks Macdonald think
Is there a Trump or Powell ‘put’ option in markets? This loosely borrows terminology from derivative markets to describe the idea that investors might have something akin to a free insurance policy in markets – the idea, in this case, that US president Trump or US Federal Reserve Chair Powell might ride to investors’ rescue if we saw a sustained sell-off in stock markets. The difficulty with this idea however, is the question : how volatile do markets have to be to elicit such a response? Despite last week’s sell-off in US equity markets in particular, Powell said on Friday that “the US economy continues to be in a good place”, and the day before, Trump talked about a "period of transition" taking place for the US economy as he rolls out his tariff agenda, but adding that “it takes a little time, but I think it should be great for us”. Reading between the lines, it suggests neither Powell nor Trump see anything in markets to worry about unduly yet.
Source: Brooks Macdonald
Brooks Macdonald Group plc, Brooks Macdonald Asset Management Limited, Brooks Macdonald Financial Consulting Limited and Brooks Macdonald Funds Limited have their registered office at 21 Lombard Street, EC3V 9AH. Levitas Investment Management Services Limited has its registered office at the 21 Lombard Street, EC3V 9AH. Cornelian Asset Managers Limited has its registered office at Hobart House, 80 Hanover Street, Edinburgh, EH2 1EL. Brooks Macdonald Asset Management Limited is authorised and regulated by the Financial Conduct Authority.
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