Brooks Macdonald Investment Bulletin - 7th March 2025

What has happened

There were two concurrent themes at work in markets yesterday. First, in Germany, and in turn washing over much of continental Europe, 10-year government bond yields continued to rise yesterday, following the huge German fiscal package plan (for defence and infrastructure spending) that the country’s politicians outlined earlier this week.  Second, continued US trade tariff volatility, U-turns, and general levy uncertainty that has emanated from US president Trump this week again dented investor confidence, whipping up market uncertainty and hitting market ‘animal spirits’ more broadly. It was enough to send the US S&P500 equity index down -1.78% to its worst day this year (with megacap tech underperforming); elsewhere, the pan-European STOXX600 equity index did better but still dropped marginally at -0.03%, while the FTSE100 equity index fell -0.83%, all in local currency price return terms. Overnight, Asian markets including Japan have largely taken their cue from the US, dropping back on the day.

More Trump tariff whiplash

It is hard to keep up with Trump’s tariff U-turns currently. After hitting Canada and Mexico with 25% trade tariffs on Tuesday, Trump exempted auto companies from those levies on Wednesday, and then yesterday, we saw Trump delaying for almost a month (until 2 April), those goods from Mexico and Canada that meet the previously signed (in 2018) USMCA (United States-Mexico-Canada Agreement) requirements – that is estimated to be around half of the goods affected by the latest Trump tariffs.

ECB cuts deposit interest rate for a sixth time

The European Central Bank (ECB) yesterday cut its deposit interest rate for the sixth time since June 2024 (it was the ECB’s fifth cut in a sequential row of back-to-back-meetings – remember the ECB paused for one meeting back in July last year, after that first cut in June). That took the ECB’s deposit interest rate down by -25 basis points to 2.5%, and versus the 4% starting point ahead of that first cut in June last year. However, there is a likelihood now that the pace of rate cuts will ease from here, and may even pause across some meetings, with a pause now thought possible at the next ECB meeting in April. Yesterday ECB officials described their latest rate settings as “meaningfully less restrictive” while ECB president Lagarde said the ECB would switch “to a more evolutionary approach” and “respond to the data”.

What does Brooks Macdonald think

Accusations that US president Trump is making up US trade policy ‘on-the-fly’ have gained a lot of ground in recent days. That is not good for anyone making market or business investment decisions. Keep in mind that that latest tariff rollbacks amount to just a temporary delay, and we still have Trump’s ‘reciprocal’ trade tariffs due to come into force next month on 2 April. While Trump can roll-back tariffs on a whim it seems, the risk is that this leaves a longer-lasting scarring on confidence, whether that be business, consumer, or investor confidence or indeed all three – and possibly leaving investors requiring bigger risk-premiums on risk assets more broadly.

Source: Brooks Macdonald

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