Category: Economoney

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UK economy shrank in April 2025

UK flag on a squeezed bottle

The UK economy contracted by 0.3% in April 2025, a sharper decline than the 0.1% forecast by economists, according to the Office for National Statistics (ONS).

The unexpected downturn has raised fresh concerns about the country’s economic resilience amid rising costs and global trade tensions.

April’s contraction was driven by a combination of domestic and international pressures. A significant rise in employers’ National Insurance contributions, coupled with increases in water, energy, and council tax bills, placed added pressure on businesses and households.

Simultaneously, newly imposed U.S. tariffs, introduced by President Trump, led to the steepest monthly drop in UK exports to the United States on record.

Services and manufacturing, which together form the backbone of the UK economy, both saw declines.

Legal and real estate sectors were particularly affected, following a surge in house sales in March 2025 ahead of stamp duty changes. Car manufacturing also faltered after a strong first quarter.

Despite the monthly setback, UK GDP still grew by 0.7% over the three months to April 2025, suggesting some economic activity may have been pulled forward earlier in the year.

Chancellor Rachel Reeves reportedly acknowledged the figures were ‘clearly disappointing’ but reaffirmed her commitment to long-term growth through strategic investments in infrastructure, housing, and energy.

While April’s figures may not signal an immediate crisis, they underscore the fragility of the UK’s recovery.

With UK inflation still above target and interest rates elevated, the UK government faces a delicate balancing act to sustain momentum without stifling growth.

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U.S. inflation up 0.1% in May – but less than expected

U.S. inflation

In May 2025, U.S. inflation rose by 0.1% from the previous month, bringing the annual inflation rate to 2.4%, slightly below economists’ predictions of 2.5%.

Core U.S. inflation, which excludes food and energy, increased by 0.1% month-on-month, with a year-on-year rate of 2.8%.

The modest rise was largely offset by falling energy prices, particularly a 2.6% drop in petrol, which helped keep overall inflation in check.

Prices for new and used vehicles, as well as apparel, also declined. Meanwhile, food and housing (shelter) costs each rose by 0.3%, with housing (shelter) being the primary contributor to the monthly increase.

Despite President Trump’s sweeping tariffs introduced in April 2025, their inflationary impact has yet to fully materialise. Analysts suggest that many companies are still working through pre-tariff inventories, delaying price hikes for consumers.

However, economists caution that the effects may become more pronounced in the coming months.

The Federal Reserve is expected to hold interest rates steady for now, as U.S. policymakers monitor whether inflation remains contained or begins to accelerate due to trade-related pressures.

Markets responded positively to the data, with stock futures rising and Treasury yields falling.

So, while inflation remains above the Fed’s 2% target, May’s figures suggest a temporary reprieve.

The summer could yet tell a different story.

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China suffers U.S. tariff driven falls in exports and increased deflation concerns

China exports to U.S. suffer due to tariffs

China’s economic landscape is facing mounting challenges as exports to the United States plummet and consumer prices decline, sparking fears of deflation.

The latest trade data reveals that Chinese exports to the U.S. fell by 34.5% in May 2025, marking the sharpest drop in over five years. This decline comes despite a temporary trade truce that paused most tariffs for 90 days.

China’s consumer prices have continued their downward trend, raising concerns about deflation and its long-term impact on the economy.

The sharp fall in exports is largely attributed to high U.S. tariffs and weakening demand. While China’s overall exports grew by 4.8%, shipments to the U.S. suffered significantly, reflecting the ongoing trade tensions between the two economic giants.

Imports from the U.S. also dropped by 18%, further shrinking China’s trade surplus with America. In response, Chinese exporters are shifting their focus to other markets, particularly Southeast Asia and Europe, where demand remains relatively strong.

China’s CPI reading

At the same time, China’s consumer price index (CPI) fell by 0.1% in May 2025, deepening concerns about deflation. Deflation, the opposite of inflation, can lead to lower corporate profits, wage cuts, and job losses, creating a vicious cycle of economic stagnation.

The decline in consumer prices is largely driven by weak domestic demand, exacerbated by the ongoing real estate crisis. Many Chinese consumers are hesitant to spend, fearing further declines in property values and economic uncertainty.

China’s rare earth materials olive branch

China appears to have offered U.S. and European auto manufacturers a reprieve after industry groups warned of increasing production threats over a rare earth shortage.

China’s Ministry of Commerce on Saturday 7th June 2025 reportedly said it was willing to establish a so-called ‘green channel’ for eligible export licence applications to expedite the approval process to European Union firms. 

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ECB cuts interest rate to 2%

EU interest rate at 2%

The European Central Bank (ECB) announced a 0.25% rate cut on 5th June 2025, lowering the deposit facility rate to 2%.

This marks the seventh consecutive rate cut as the ECB continues its monetary easing cycle.

ECB President Christine Lagarde emphasised that inflation has fallen below the 2% target, but economic growth remains sluggish.

Investors are now watching for further rate cuts later in the year, with markets pricing in another 0.25% reduction in October.

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Debt and trade issues weaken UK growth – so says the OECD

UK growth

The latest OECD report presents a cautious outlook for the UK economy, predicting slower growth amidst global uncertainties and domestic fiscal challenges.

The UK’s GDP is projected to grow by 1.3% in 2025 and 1% in 2026, reflecting a slight downward revision.

According to the OECD, trade tensions, particularly U.S. tariffs, are disrupting global supply chains and weakening business confidence.

At the same time, consumer sentiment remains low, and business investment is expected to decline, counteracting the benefits of recent government spending initiatives.

A significant concern highlighted in the report is the UK’s public finances. The OECD warns that the government’s limited fiscal buffers could leave the economy vulnerable to future downturns.

It suggests targeted spending cuts and tax reforms, including a reassessment of council tax bands to reflect updated property valuations.

Debt interest

The OECD has warned that high interest payments on government debt and trade tensions are weighing on the UK’s economic growth. The UK’s fiscal position is described as having ‘very thin’ margins, meaning there is little room for unexpected financial shocks – of which there have been many.

Despite these hurdles, the UK is expected to outperform some major European economies, including France and Germany. However, the UK government face a complex challenge, balancing growth stimulation with fiscal responsibility.

The OECD encourages the government to accelerate infrastructure investments and enhance productivity to ensure long-term economic resilience.

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Eurozone inflation falls below ECB target of 2% – now what?

Inflation in the eurozone fell to 1.9% in May 2025, dropping below the European Central Bank’s (ECB) 2% target for the first time in months.

This unexpected decline has sparked discussions about the potential consequences for the region’s economy.

The latest data from Eurostat shows that core inflation, which excludes volatile items like energy and food, also eased to 2.3%, down from 2.7% in April.

Services inflation, a key indicator of consumer demand, dropped sharply to 3.2% from 4%. These figures suggest that price pressures are cooling faster than anticipated.

While lower inflation can ease the cost of living for consumers, it also raises concerns about economic stagnation.

The ECB has been gradually cutting interest rates to support growth, and markets are now pricing in a 95% chance of another rate cut this week. However, if inflation continues to fall below target, it could signal weak demand and slow wage growth, potentially leading to deflationary risks.

Adding to the uncertainty, global trade tensions, particularly U.S. tariff policies, are clouding the economic outlook. The ECB will need to carefully balance its approach to ensure inflation remains stable while supporting economic expansion.

As policymakers prepare for their next decision, the eurozone faces a delicate challenge: maintaining price stability without stifling growth.

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OECD cuts U.S. growth forecast amid Trump’s tariff chaos

OECD U.S. data

The Organisation for Economic Co-operation and Development (OECD) has sharply downgraded its U.S. growth forecast, citing economic uncertainty and the impact of President Donald Trump’s tariff policies.

The OECD now expects the U.S. economy to expand by just 1.6% in 2025 and 1.5% in 2026, a significant cut from its previous estimate of 2.2% for 2025.

The report highlights several factors contributing to the slowdown, including elevated policy uncertainty, reduced net immigration, and a shrinking federal workforce.

The OECD also warns that higher trade barriers could further dampen business confidence and investment.

Global growth projections have also been revised downward, with the OECD stating that the slowdown is most pronounced in North America, particularly in the U.S., Canada, and Mexico.

The organisation reportedly notes that U.S. tariff-related disruptions are expected to push inflation higher, although weaker commodity prices may offset some of the impact.

The OECD’s latest outlook underscores the growing challenges facing the U.S. economy as trade tensions persist.

With tariffs fluctuating due to ongoing ‘stop start’ legal interventions, businesses and investors remain cautious about the future.

The coming months will be crucial in determining whether policymakers can stabilise growth and restore confidence in the market.

Stop the tariffs and all will be fine.

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China’s manufacturing sector experiences decline amid Tariff chaos

China factory data

China’s manufacturing activity took an unexpected hit in May 2025, marking its steepest decline since September 2022.

The Caixin/S&P Global manufacturing PMI fell to 48.3, signalling contraction for the first time in eight months. This downturn comes as U.S. tariffs begin to weigh heavily on Chinese exports, dampening global demand and disrupting supply chains.

The latest data reveals that new export orders shrank for the second consecutive month, hitting their lowest level since July 2023.

Factory output also contracted for the first time since October 2023, reflecting the broader economic slowdown. Analysts attribute this slump to the reinstatement of sweeping U.S. tariffs, which were briefly halted before being reimposed by a federal appeals court.

Despite a temporary trade truce between the U.S. and China, tensions remain high, with both sides accusing each other of violating agreements.

The uncertainty surrounding trade policies has led Chinese manufacturers to cut jobs at the fastest pace since the start of the year, further exacerbating economic concerns.

China’s Premier Li Qiang has hinted at new policy tools, including unconventional measures to stabilise the economy. However, with tariffs set to remain high and structural challenges persisting, experts predict continued pressure on China’s industrial sector.

As the world’s second-largest economy grapples with these headwinds, the coming months will be crucial in determining whether Beijing can implement effective strategies to counteract the impact of tariffs and restore manufacturing momentum.

Caixin/S&P Global manufacturing PMI survey

The report was based on the Caixin/S&P Global manufacturing PMI survey, which is a private-sector survey that tracks China’s manufacturing activity.

This survey is conducted mid-month and covers over 500 mostly export-oriented businesses, making it distinct from China’s official PMI, which samples 3,000 companies and is compiled at month-end.

The Caixin PMI tends to focus more on small and medium-sized enterprises, whereas the official PMI aligns more closely with industrial output.

In May, the Caixin PMI fell to 48.3, marking its first contraction in eight months. The decline was largely driven by shrinking new export orders, which hit their lowest level since July 2023.

The survey also showed that employment in the manufacturing sector declined at the fastest pace since January, reflecting the broader economic slowdown.

One key difference between the Caixin PMI and the official PMI is their timing. The Caixin survey is conducted earlier in the month, meaning it may not fully capture policy changes or trade developments that occur later.

For example, economists noted that the effect of the tariff de-escalation in mid-May may not have been reflected in the Caixin PMI results

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Why are investors taking up positions in short term treasury bets?

Short-term Treasury Yields

Investors are increasingly favouring short-term U.S. Treasury securities, with notable figures like Warren Buffett taking sizeable positions.

This shift is driven by concerns over economic instability, fluctuating bond yields, and government spending.

Short-term Treasuries, such as T-bills with maturities under a year, offer a safer haven compared to longer-term bonds, which are more vulnerable to interest rate changes.

As central banks navigate monetary policy adjustments, many investors prefer the flexibility of short-duration assets that minimise exposure to prolonged economic uncertainty.

One of the biggest influences in this trend is Berkshire Hathaway’s substantial stake in T-bills, which has reinforced confidence in these instruments.

Additionally, ultra-short bond ETFs like SGOV and BIL have seen significant inflows, highlighting the growing demand for liquid, low-risk investments.

Another key factor driving this strategy is concern over U.S. fiscal policy. Investors are wary of rising deficits and potential tax hikes, which could impact long-term bond stability.

By allocating funds to short-term Treasuries, they can mitigate risks while maintaining liquidity.

This surge in short-term Treasury investments reflects a broader shift in market sentiment-favouring stability and flexibility over long-term speculation.

As economic uncertainty persists, investors are likely to continue this defensive strategy.

SGOV & BIL ETFs explained

SGOV and BIL are both exchange-traded funds (ETFs) that invest in U.S. Treasury bills, offering a low-risk way to earn interest on short-term government debt.

SGOV (iShares 0-3 Month Treasury Bond ETF) tracks the ICE 0-3 Month U.S. Treasury Securities Index, investing in Treasury bonds with maturities of three months or less. It launched in 2020 and is known for its low expense ratio.

BIL (SPDR Bloomberg 1-3 Month T-Bill ETF) follows the Bloomberg 1-3 Month U.S. Treasury Bill Index, focusing on Treasury bills with maturities between one and three months.

It has been around since 2007 and is one of the largest T-bill ETFs.

Both ETFs provide exposure to ultra-short-term government securities, making them attractive options for investors seeking stability and liquidity in uncertain markets.

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Trump’s tariffs challenged in court and deemed to be illegal

U.S. tariff court ruling

A U.S. federal court has ruled that former President Donald Trump’s sweeping tariffs were imposed illegally, dealing a significant blow to his economic policies.

The Court of International Trade determined that Trump exceeded his authority by invoking emergency powers to justify tariffs on nearly every country.

The ruling states that the U.S. Constitution grants Congress exclusive power to regulate commerce, meaning the president cannot unilaterally impose such broad trade restrictions.

The decision immediately halted the 10% tariffs Trump had imposed on most U.S. trading partners, as well as additional levies on China, Mexico, and Canada.

The court found that the International Emergency Economic Powers Act (IEEPA), which Trump cited as justification, does not grant him the authority to implement such sweeping trade measures.

The White House swiftly filed an appeal, arguing that the tariffs were necessary to address trade imbalances and safeguard American industries.

However, businesses and state governments that challenged the tariffs welcomed the ruling, citing concerns over inflation and economic harm.

Dow Jones Industrial Average Futures 28th & 29th May 2025 after the court ruling

Dow Jones Industrial Average Futures 28th & 29th May 2025 after the court ruling

Markets responded positively to the decision, with stock futures rising and the U.S. dollar strengthening. If the ruling stands, businesses that paid the tariffs may be eligible for refunds, marking a potential shift in U.S. trade policy.

The U.S. President is expected to find a workaround after suffering a major blow to a core part of his economic agenda.

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What’s going on in the U.S. bond market?

Treasury yields

The U.S. bond market is experiencing some turbulence due to rising Treasury yields and concerns over government debt.

Investors are demanding higher yields because they’re worried about the GOP’s tax-cut plans, which could lead to increased borrowing and a larger deficit.

Additionally, the recent Trump tax bill has caused Treasury bond yields to surge, as investors anticipate more government debt issuance. Moody’s has also downgraded the U.S. credit rating, adding to market jitters.

The bond market’s reaction is significant because higher yields can lead to increased borrowing costs across the economy, affecting everything from mortgages to corporate financing.

Japan

Japan’s bond market is facing significant turbulence, with yields on 40-year government bonds hitting an all-time high. This surge in yields is causing concerns about capital repatriation, as Japanese investors may start pulling funds from the U.S. and other foreign markets.

The Bank of Japan’s reduced bond purchases have contributed to this trend, leading to weaker demand for long-term government debt. Analysts warn that if Japanese investors begin moving their capital back home, it could trigger a global financial market shake-up.

Additionally, Japan’s Finance Ministry is considering reducing the issuance of super-long bonds to stabilise the market. However, recent auctions have shown weak demand, raising concerns about the effectiveness of this strategy.

Europe

The European bond market is experiencing some shifts due to falling government bond yields and easing U.S. – EU trade tensions.

German 10-year bund yields dropped by 4 basis points, reflecting increased investor confidence.

UK and French 10-year bond yields also declined by 4 basis points, while Italian bonds saw a 2 basis point dip.

Long-term UK gilts experienced the biggest movement, with 20 and 30-year yields falling by 7 basis points.

This decline in yields suggests higher demand for European government debt, possibly due to investors shifting away from U.S. assets amid concerns over U.S. fiscal health.

UK

The UK bond market is facing some challenges, with the IMF warning that it is vulnerable to sudden shocks due to a growing reliance on hedge funds and foreign investors.

30-year gilt yields have hit 5.5%, the highest in over three decades.

The Bank of England’s quantitative tightening and increased bond issuance are putting pressure on the market.

The Debt Management Office (DMO) is shifting towards short-dated debt to reduce long-term interest costs.

Additionally, the UK government has launched a new 30-year gilt offering 5.375% interest, which is attracting investor attention.

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China’s industrial profit accelerates in April 2025 – despite Trump’s tariffs

China factory output

Despite the heavy tariffs imposed by former U.S. President Donald Trump, China’s industrial sector has demonstrated remarkable resilience.

In April 2025, industrial profits rose by 3%, marking the second consecutive month of growth.

This increase was largely driven by Beijing’s strategic policy measures, which cushioned the impact of the tariffs and supported private enterprises.

In the first four months of 2025 China’s industrial profits rose 1.4%, according to data released on 27th May 2025.

Trump’s administration had levied tariffs as high as 145% on Chinese imports, prompting Beijing to retaliate with its own trade restrictions.

However, rather than crippling China’s manufacturing sector, these tariffs led to a shift in trade dynamics. Chinese exporters successfully found alternative markets, particularly in Southeast Asia and Europe, mitigating the losses from reduced U.S. trade.

It isn’t unusual for businesses to weather and absorb such tariffs but more usually, the consumer bears the brunt and pays some, if not all, of the increased costs.

High-tech manufacturing and equipment production saw notable gains, with profits in these sectors rising by 9% in the first four months of the year.

Additionally, government subsidies for consumer electronics and appliances helped boost domestic demand, further stabilising industrial growth.

While state-owned enterprises reportedly faced challenges, private firms and foreign-invested businesses saw profits improve.

Analysts suggest that China’s ability to adapt to external shocks underscores the resilience of its industrial economy, even in the face of aggressive trade policies

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Japan’s core inflation rises to 3.5% – higher than expected

Japan economic data

Japan’s inflation figures for April 2025 have revealed a continued rise in consumer prices, with the Consumer Price Index (CPI) climbing 3.6% year-on-year.

This marks a sustained period of inflation above the Bank of Japan’s (BoJ) target of 2%, prompting speculation about potential interest rate hikes later in the year.

Core inflation, which excludes fresh food, rose 3.5% YoY, exceeding market expectations. A major driver of this surge has been food prices, particularly rice, which has soared by an astonishing 98% compared to last year.

The sharp increase has led the government to release emergency stockpiles to stabilise the market.

The BoJ faces a delicate balancing act. While inflation remains strong, economic uncertainty – partly fueled by U.S. tariffs, could complicate monetary policy decisions. The central bank has already raised rates in recent months but has paused further hikes to assess the broader economic impact.

With inflationary pressures persisting, analysts predict that the BoJ may tighten policy again by October 2025.

Concerns over global trade and domestic economic stability could influence the timing of any further rate adjustments.

The core inflation increase of 3.5% was far higher than expected.

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UK inflation hits 3.5% in April 2025 as household bills surge

UK inflation up!

UK inflation rose to 3.5% in April 2025, exceeding expectations and placing further financial strain on households.

The increase, reported by the Office for National Statistics, was driven by higher energy costs, water bills, and taxation pressures on businesses.

One of the most striking factors behind the surge was the 26.1% increase in water and sewerage costs, the largest recorded jump since 1988.

This, combined with electricity and gas prices, contributed to the unexpected rise in inflation. Meanwhile, falling fuel prices and clothing discounts helped mitigate some of the upward pressure.

The Bank of England, which had forecasted inflation at 3.4%, may now reconsider its approach to interest rates. A sustained period of inflation over 3% could delay potential rate cuts, impacting mortgage rates and borrowing costs.

Despite concerns, economists believe inflation should gradually ease in the coming months. However, persistent cost pressures on household essentials mean many families will continue to feel the squeeze.

The Bank of England will be closely monitoring economic trends before making further financial decisions.

With inflation unexpectedly climbing, individuals may need to rethink their budgets, spending habits, and savings strategies for the months ahead.

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China’s retail and industrial growth slows amid ongoing tariff driven economic uncertainty

China retail data

China’s economy showed signs of slowing in April 2025, with both retail sales and industrial output missing expectations.

Retail sales grew 5.1% year-on-year, falling short of analysts’ forecasts of 5.5% growth. The slowdown reflects weak consumer sentiment, driven by deflationary pressures and uncertainty in the housing market.

While categories like gold and jewellery (+25.3%) and furniture (+26.9%) saw strong growth, car sales stagnated at just 0.7%.

Industrial production expanded 6.1% year-on-year, down from 7.7% in March 2025. The decline was largely attributed to tariff trade war tensions, which have disrupted exports.

However, fixed-asset investment rose 4% in the first four months of 2025, signalling continued infrastructure spending.

Despite the slowdown, China remains confident in achieving its 5% GDP growth target for the year. The government has introduced stimulus measures, including interest rate cuts and liquidity injections, to stabilise the economy.

With global trade uncertainties and domestic economic challenges, China’s policymakers face a delicate balancing act to sustain growth while addressing structural weaknesses.

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Moody’s Downgrades U.S. Credit Rating Amid Rising Debt Concerns

U.S. credit rating downgrade

Moody’s Investors Service has downgraded the United States’ sovereign credit rating from Aaa to Aa1, citing concerns over the country’s growing debt burden and rising interest costs.

This marks the first time Moody’s has lowered the U.S. rating, aligning it with previous downgrades by Standard & Poor’s (2011) and Fitch Ratings (2023).

The downgrade reflects the increasing difficulty the U.S. government faces in managing its fiscal deficit, which has ballooned to $1.05 trillion – a 13% increase from the previous year.

Moody’s analysts noted that successive administrations have failed to implement effective measures to curb spending, leading to a projected U.S. debt burden of 134% of GDP by 2035.

Market reactions were swift, with U.S. Treasury yields rising and stock futures sliding as investors reassessed the risk associated with U.S. assets. The downgrade could lead to higher borrowing costs for the government and businesses, potentially slowing economic growth.

Despite the downgrade, Moody’s emphasised that the U.S. retains exceptional credit strengths, including its large, resilient economy and the continued dominance of the U.S. dollar as the global reserve currency.

However, without significant fiscal reforms, further credit rating adjustments may be inevitable.

Time to print some more money…

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Trump does deals!

U.S. does deals!

Trump Secures Over $1.4 Trillion in Landmark Middle East Trade Agreements

President Donald Trump’s recent visit to the Middle East has resulted in a wave of economic agreements totaling over $1.4 trillion, marking one of the largest trade expansions between the region and the United States.

With a focus on investment, defence, and technology, Trump’s approach has emphasised strengthening economic ties rather than engaging in broader geopolitical discussions.

Qatar: aviation and defence take centre stage

One of the most eye-catching deals came from Qatar, where Qatar Airways finalised a $96 billion agreement to purchase 210 Boeing jets – the largest Boeing order in history.

This commitment not only bolsters Qatar’s aviation industry but also solidifies Boeing’s future as a leader in global aerospace manufacturing.

Additionally, Qatar has pledged $243.5 billion toward investments in quantum technology and defence systems, reinforcing the country’s push toward technological advancement.

Defence agreements also played a role, with Qatar signing a $1 billion deal for cutting-edge drone defence technology and a $2 billion contract for advanced remotely piloted aircraft.

These acquisitions align with the country’s long-term strategic vision of modernising its military capabilities.

Saudi Arabia: the biggest beneficiary

Saudi Arabia emerged as the biggest beneficiary of Trump’s visit, securing $600 billion in investment commitments across multiple sectors.

The kingdom allocated $142 billion toward military equipment and services, ensuring continued collaboration between U.S. defence contractors and Saudi leadership.

This agreement spans air defence systems, next-generation fighter jets, and cybersecurity infrastructure, strengthening Saudi Arabia’s military.

Beyond defence, Saudi Arabia also inked deals in AI infrastructure, energy projects, and technology investments, positioning itself as a hub for digital transformation.

By incorporating AI-driven solutions into its economy, the kingdom aims to enhance productivity and accelerate its shift toward a diversified financial landscape.

United Arab Emirates: AI

United Arab Emirates secured $200 billion in deals, featuring a 10-square-mile AI campus in Abu Dhabi and a $14.5 billion aircraft investment by Etihad Airways

Strategic impact

Trump’s visit signifies a shift in U.S. foreign policy, focusing heavily on economic partnerships rather than traditional diplomatic negotiations.

By securing these agreements, the administration aims to strengthen American industries, bolster employment, and ensure a steady flow of investment into the U.S. economy.

While critics may argue that the deals lack a geopolitical dimension, the sheer scale of $1.4 trillion in transactions underscores Trump’s intent to foster long-term financial alliances.

The coming months will determine whether these agreements yield sustainable benefits or spark concerns over economic dependencies.

Donald Trump’s Middle East tour has reportedly resulted in over $1.4 trillion in investment pledges. His deals span multiple sectors, including defence, aviation, artificial intelligence, and energy.

Deal summary

Saudi Arabia committed $600 billion in investments, including a $142 billion defence partnership and AI infrastructure deals.

Qatar signed $243 billion in agreements, including a $96 billion Boeing aircraft purchase.

United Arab Emirates secured $200 billion in deals, featuring a 10-square-mile AI campus in Abu Dhabi and a $14.5 billion aircraft investment by Etihad Airways.

Trump’s tour has been framed as a push for foreign investment to boost U.S. manufacturing while Gulf states aim to accelerate AI development and diversify their economies

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UK first quarter GDP better than expected at 0.7%

UK GDP up!

The UK economy has defied expectations, recording a 0.7% increase in GDP in the first quarter of 2025 – better than the forecast of 0.6%.

This surge places Britain ahead of economic heavyweights, including the United States, Canada, France, Italy, and Germany.

A key driver of this growth has been the service sector, which demonstrated resilience amid global economic uncertainty. Production also experienced a boost, further solidifying the UK’s standing as an economic force.

Chancellor Rachel Reeves was quick to praise the achievement, citing the government’s commitment to fostering stability and investment.

However, economists are watching closely as Britain navigates potential challenges ahead, particularly in light of the latest global trade tariffs imposed by Donald Trump in April.

These new restrictions could slow growth in the coming months, but for now, the economy is holding firm. However, the UK – U.S. tariff deal is likely to lessen the overall impact and present a further improvement in the second quarter.

With businesses continuing to adapt to shifting market conditions, the UK’s better-than-expected performance is a welcome sign.

Data source: Home – Office for National Statistics

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U.S. inflation rate at 2.3% in April 2025 – less than expected

U.S. inflation

April 2025 saw the U.S. inflation rate ease to 2.3%, marking its lowest level since February 2021.

The consumer price index (CPI) rose 0.2% for the month, aligning with expectations but slightly below the forecasted 2.4% annual rate.

Core CPI, which excludes volatile food and energy prices, also increased 0.2%, maintaining a 2.8% year-on-year rate.

Shelter costs, which make up a significant portion of the index, rose 0.3%, contributing to more than half of the overall inflation movement.

U.S. egg prices dropped 12.7%, though they remained 49.3% higher than a year ago.

The impact of Trump’s tariffs remains uncertain, with negotiations potentially influencing inflation trends in the coming months.

Court to judge on legality of ‘reciprocal’ tariffs

U.S. Court of International Trade is set to hear arguments in a case challenging President Donald Trump’s tariffs.

The lawsuit filed by five domestic businesses argues that the law Trump invoked to impose his ‘reciprocal’ tariffs does not actually give him the power he claims.

The Department of Justice maintains that that law ‘clearly’ authorises the president to impose tariffs.

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Trump tariff roll-back – a win for China? U.S. markets rejoice the ‘deal’

U.S. markets gain on U.S China tariff roll-back announcement

The U.S. stock market surged as investors cheered a breakthrough in trade negotiations between Washington and Beijing.

The rollback of tariffs, announced as part of a new trade agreement, sent the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite soaring.

The deal, which slashes ‘reciprocal’ tariffs on both sides, is seen as a major de-escalation in the ongoing trade war that has rattled global markets for years.

Wall Street’s Reaction

Markets responded with enthusiasm as the Dow Jones Industrial Average jumped over 1,000 points, while the S&P 500 climbed more than 2.5%, and the Nasdaq surged by nearly 3%.

Investors had been wary of prolonged trade tensions, which had weighed heavily on corporate earnings and economic growth.

The tariff rollback signals a potential thaw in relations, boosting confidence across sectors, particularly in technology, retail, and manufacturing.

Tariff rollback

Under the agreement, U.S. tariffs on Chinese imports will be reduced from 145% to 30%, while China’s tariffs on American goods will drop from 125% to 10%. The reductions will be in effect for 90 days, allowing both nations to continue negotiations on a broader trade framework.

Treasury Secretary Scott Bessent emphasised that neither side wants a complete decoupling, and the rollback is intended to restore trade flows disrupted by years of economic brinkmanship.

China’s perspective: A strategic victory?

While the U.S. markets celebrated, China views the deal as a significant win. Beijing has sought relief from the steep tariffs imposed by Washington, which had strained its export-driven economy.

The agreement not only reduces financial pressure on Chinese manufacturers but also positions China as a key player in shaping future trade policies.

Some analysts argue that Beijing successfully leveraged its economic resilience to push Washington toward concessions, reinforcing its global influence.

Looking ahead

Despite the optimism, uncertainties remain. The 90-day window for negotiations suggests that further trade disputes could arise if talks stall. But will the U.S. allow that after the stock market turmoil Trump’s tariffs originally created?

Additionally, Federal Reserve Chair Jerome Powell cautioned that while sentiment has improved, the economic impact of previous tariffs has yet to fully materialise. Investors will be watching closely for signs of sustained progress, as any setbacks could trigger renewed volatility.

For now, Wall Street is basking in the relief of a tariff truce, with hopes that this momentum will lead to a more stable and predictable trade environment.

Whether this marks the beginning of a lasting resolution or just a temporary reprieve remains to be seen.

It is most likely now a platform for the U.S. to benefit from generally lower tariffs in the future.

There will again be cheap goods on U.S. shelves in time for Christmas.

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U.S. and China agree 90-day ‘reciprocal’ tariff pause and reduction deal

Tariff trade war 90-day pause

In a surprising breakthrough, the United States and China have agreed to suspend most tariffs on each other’s goods for 90 days, marking a significant step toward easing trade tensions between the world’s two largest economies.

Following high-stakes negotiations in Geneva, representatives from both nations announced that reciprocal tariffs would be slashed from 125% to 10%, significantly lowering trade barriers.

However, the U.S. will continue imposing 20% tariffs on Chinese imports related to fentanyl, meaning total tariffs on Chinese goods will settle at 30%.

The agreement signals a temporary thaw in what has been a long-standing economic standoff between Washington and Beijing. U.S. Treasury Secretary Scott Bessent, who played a leading role in the discussions, described the talks as ‘very productive’, crediting the location for fostering an atmosphere of cooperation.

While this move could provide immediate relief for businesses and consumers impacted by trade restrictions, analysts caution that the 90-day suspension may not translate into a long-term solution.

Some experts speculate that ongoing trade negotiations could lead to further reductions, while others warn that unresolved tensions could lead to reinstated tariffs if agreements stall.

For now, the deal presents an opportunity for renewed dialogue, leaving global markets optimistic about future relations between the two economic powerhouses.

How the next three months unfold will determine whether this development is a stepping stone to broader reforms or simply a temporary reprieve in a complex trade dispute.

I expect Trump, having instigated the ‘tariff’ upheaval, will happily hang on to this ‘deal’ with China to avoid any further stock market turmoil.

What really just happened? The markets seem to be rewarding a situation that was artificially created and then ‘fixed’.

Aren’t we simply back where we were before the Trump tariff onslaught or is this really a ‘promise’ for better ‘deals’ to come?

Has it opened a door for better relations?

Create a problem… fix a problem!

It’s all about the U.S.

We’ll see…

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China’s Exports Defy Tariff Pressures, Surge 8.1% in April

China World Trade

Despite the weight of U.S. tariffs imposed by President Donald Trump, China’s export sector has shown remarkable resilience, posting an 8.1% increase in April 2025 compared to the previous year.

This surge comes as a surprise, surpassing economists’ expectations of a modest 1.9% rise.

While China’s outbound shipments to the U.S. plunged by over 21%, exports to Southeast Asian nations soared by 20.8%, with Indonesia and Thailand seeing particularly strong growth.

This shift suggests that Chinese exporters are successfully redirecting their goods to alternative markets, mitigating the impact of U.S. trade restrictions.

The tariffs, which now stand at 145% on Chinese imports, were designed to pressure Beijing into trade concessions. In response, China retaliated with 125% duties on American goods, further escalating tensions.

However, analysts suggest that some of China’s export growth may be attributed to transshipment through third countries and contracts signed before the tariffs took effect.

Despite the export boom, China’s factory activity has taken a hit, falling to a 16-month low in April 2025, with new export orders dropping to their lowest level since December 2022.

Concerns are mounting that the tariffs could spill over into the job market, with estimates suggesting China could lose 16 million jobs tied to U.S. – bound production.

As both nations prepare for high-level trade talks in Switzerland, there is cautious optimism that a phased rollback of tariffs could be on the horizon.

While a comprehensive deal remains elusive, even minor tariff reductions could provide relief to businesses on both sides.

The coming months will be crucial in determining whether China can sustain its export momentum or if the tariff war will take a deeper toll on its economy.

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Bank of England cuts interest rates by 0.25% to 4.25%

BoE

The Bank of England has cut interest rates by 25 basis points to 4.25% on 8th May 2025 marking its fourth reduction since August 2023.

The decision, backed by a majority of the Monetary Policy Committee, reflects easing inflation pressures and a need to support economic growth.

Inflation, currently at 2.6%, is expected to rise temporarily to 3.5% due to household bill increases.

The cut will provide relief to homeowners and businesses facing high borrowing costs.

However, policymakers remain cautious, balancing growth stimulation with inflation control. Markets anticipate further cuts, potentially bringing rates down to 3.25% by year-end.

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U.S. Federal Reserve holds interest rates at 4.25% – 4.50% and upsets Trump in the process

Tariffs and the U.S. economy?

The Federal Reserve held its key interest rate steady at 4.25% – 4.50% on 7th May 2025, citing economic uncertainty and the potential impact of tariffs.

Fed Chair Jerome Powell emphasised that the central bank is in wait-and-see mode, monitoring inflation and employment risks.

The decision follows concerns that Trump’s trade policies could lead to stagflation, with rising prices and slowing growth.

While markets reacted positively, analysts remain divided on whether the Fed will cut rates later this year.

Powell stated that future adjustments will depend on evolving economic conditions and the balance of risks.

Trump’s take on this decision was reportedly to call Powell… a fool.

What is stagflation?

Stagflation is an economic condition where high inflation, stagnant economic growth, and high unemployment occur simultaneously.

It presents a challenge for policymakers because measures to reduce inflation can worsen unemployment, while efforts to boost growth may fuel inflation further.

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Signs of weakness in the U.S. economy – is a recession coming and is the United States causing harm to global economies?

Cracking world economies

The U.S. economy is showing cracks as multiple indicators suggest that growth may be slowing.

With GDP shrinking by 0.3% in the first quarter of 2025, concerns about an impending recession have intensified among analysts and investors.

A key driver of this economic downturn is the ongoing trade uncertainty, which has prompted businesses to stock up on imports before new tariffs take effect.

While some experts argue this is a temporary setback, others caution that prolonged trade conflicts could stifle growth for months to come.

Resilient labour market

Despite these concerns, the labour market has remained resilient, with unemployment hovering at 4.2%. However, signs of strain are emerging – job openings have declined, and layoffs have picked up in certain industries.

If hiring slows further, consumer spending could weaken, adding pressure to the economy.

Inflation remains another point of concern. Rising costs of goods and services have strained household budgets, leading to reduced discretionary spending.

The Federal Reserve, which has maintained high interest rates, is carefully assessing whether policy adjustments are needed to prevent a sharper downturn.

On Wall Street, sentiment is divided. Goldman Sachs estimates a 45% probability of a recession, while J P Morgan suggests the likelihood could be as high as 60%.

Some economists believe strategic trade deals and government intervention could avert a full-blown recession, but the margin for error is slim.

Does it really matter if there is to be a recession – it will likely be short lived. It will not please the U.S. President Donald Trump.

While uncertainty clouds the future, one thing is clear – the U.S. economy is at a pivotal moment. Whether policymakers can stabilise growth or if the nation is headed towards a deeper slowdown will depend on the next few quarters and the outcome of Trump’s tariffs.

Tudor Investment Corporation

Paul Tudor Jones, the founder of Tudor Investment Corporation, recently shared his outlook on the U.S. economy, and his perspective isn’t exactly optimistic.

He believes that U.S. stocks are likely to hit new lows before the end of the year, even if President Trump dials back tariffs on Chinese imports.

Jones pointed out that the combination of high tariffs and the Federal Reserve’s reluctance to cut interest rates is putting significant pressure on the stock market.

He reportedly noted that even if Trump reduced tariffs to 50% or 40%, it would still amount to one of the largest tax increases since the 1960s, potentially slowing economic growth.

The billionaire investor also warned that unless the Fed adopts a more dovish stance and aggressively cuts rates, the market is likely to continue its downward trajectory.

He reportedly emphasised that the current economic conditions – marked by trade uncertainty and tight monetary policy – are not favourable for a stock market recovery.

Interestingly, Jones also expressed concerns about artificial intelligence, stating that AI poses an imminent threat to humanity within our lifetime.

Maybe AI will start running hedge funds too…?

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FTSE 100 achieves longest unbroken run since inception in 1984 – how significant is this record?

Longest FTSE 100 consecutive daily gains since 1984

The FTSE 100 has made history, recording 15 consecutive days of gains—its longest winning streak since its inception in 1984.

The index closed at 8,596.35 points, marking a 1.17% rise on the final day of the streak.

This remarkable run comes amid the potential of easing trade tensions between the U.S. and China, with signs that tariff negotiations may commence.

Investors have responded positively, driving up stock prices across multiple sectors. Financial stocks, including Barclays and HSBC, have surged following strong earnings reports, while industrial and mining stocks – such as Rolls-Royce and Rio Tinto – have rebounded.

Despite the impressive streak, analysts caution that uncertainty remains. The FTSE 100 has yet to reclaim its record high from March 2025, and concerns over global trade policies could limit further gains.

However, the index has still outperformed expectations, rising 4.9% over six months and 5.1% over the past year.

FTSE 100 one-month chart

FTSE 100 one-month chart

As investors celebrate this milestone, the question remains: can the FTSE 100 sustain its momentum, or is a market correction on the horizon?

Either way, this winning streak has cemented its place in financial history.