Trade Reset? Market Implications from US–UK and US

Trump’s first 100 days back in office have not been shy of turbulence. Financial markets have been forced to adjust rapidly and with heightened volatility in response to the introduction of aggressive trade policies and escalating tensions with some labelling this period the worst for the stock market since the 1970s. However, last week’s high-level negotiations regarding the tariff policies have offered a potential turning point but will these talks bring meaningful stability, or are they simply a pause in an escalating trade war?

Key Policies Implements So Far

Trade and Tariffs

Within the past 100 days, Trump announced a new wave of reciprocal tariffs known as The Liberation Tax, introduced to address, what he views to be, unfair trade practices by foreign nations. The UK came out fairly unscathed with the minimum tariff at 10%, China was originally hit with 34%, extending all the way up to Cambodia, originally charged at 49%. The announcement triggered immediate retaliation from key trade partners. China responded with tariffs of up to 125%, and in a further escalation, the U.S. originally countered by increasing tariffs on Chinese goods to 145%.

Monetary & Fiscal Pressure

We have recently witnessed signs of cooling inflation with the March US CPI announcing a decreasing inflation rate down to 2.4% and the UK March CPI showing a decline to 2.6%. Despite this, a lack of calm has remained amongst markets with little faith remaining for the continued decline.

Recent Developments in US–UK Trade Talks

While the blanket 10% tariff on imports from the UK still applies, the UK and US have reached a deal over specific goods traded between the countries. Cars, for example, have seen a reduction from a potential tariff of 27.5% to 10% for the first 100,000 vehicles. This is a significant development, with car exports from the UK to the US being worth approximately £9bn last year.

In addition, the anticipated 25% tariff on steel and aluminium imports into the US has also been withdrawn, including products made from both metals. However, a quota system is expected, and we await confirmation on how many products the UK will be able to export to the US within this framework.

These developments represent a tentative step forward in cooperation between the two countries, though the details will be critical in determining how they proceed.

China-US: De-escalation or Delay?

Following high-level talks in Switzerland a few days ago, the US has agreed to a 90-day pause on the potential 145% tariffs imposed on Chinese imports. China has also agreed to lower duties from 125% to 10%. Knock-on effects of the tariffs resulted in $600bn worth of two-way trade halting, suggesting that both sides intend to continue trading and are willing to revisit the newly suggested rates.

As far as we are aware, there has been little discussion regarding specific sectors, leaving the potential for change firmly on the table. All eyes will be on the next 90 days to see how negotiations progress.

Market Reactions

Political-economic discussions such as these can sharply increase volatility in financial markets. Here are some developments we have seen recently:

USD rose and stock markets lifted following the news; however, it is expected that this will be short-lived as discussions continue.
Global stock markets have reacted positively – with the Dow and Hong Kong’s Hang Seng index both closing higher. The S&P 500 has fully recovered from all Liberation Day backlash closing a it highest level since March 3, and Nasdaq recording its highest close since 28^th February.
Investor appetite increased for stocks, cryptocurrencies, and commodities.
Gold saw heighted volatility as market digested the lacklustre UK/US Trade Deal, however following the Sino-US positive discussions investors fled the safe haven asset, falling 7% from the weeks’ highs while XAG retreated just shy of 4%.

Implications for Institutional Traders

Despite the current trade agreements between the US and both the UK and China providing some relief, there is a high level of uncertainty around how long this resolve will last. The market remains in a position of heightened volatility whilst trade discussions continue.

Although no immediate policy shifts or high-impact economic data are expected to significantly affect the GBP/USD exchange rate, sentiment remains cautious. Many feel that the best outcome would be for trade discussions to continue, so all eyes are on financial markets with speculation that this may be the calm before the storm.

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