Wall Street fell on Monday as US President Donald Trump sent letters imposing 25% tariffs on key trading partners, including Japan and South Korea, due to take effect on 1 August. Additional tariffs of 25%–40% were imposed on 14 countries, including South Africa and Thailand. Nothing has really changed – the real headline should be ‘Trump extends trade truce’ but retains enough stick to dangle the carrot effectively.

The S&P 500 finished the session down 0.8% while the Dow Jones fell almost 1%. The Nasdaq was down 0.9% as Tesla fell almost 7% as CEO Elon Musk launched his own political party. Japanese equities managed to rally despite the tariff news as the selloff in Japan’s 30yr long bond extended to push the yield close to a record high above 3%..watch the unwind in the yen carry trade as a potential summer trigger for a market selloff. The Korean market also rose despite the tariffs and Samsung reporting profits would halve.

As far as these tariff letters go, it’sunclear what is all that different from April. The only thing that seems different is the deadline – it's been pushed back, again.

So, of course, TACO - Trump said he was open to additional negotiations and that the new later deadline was "not 100% firm", indicating he would look favourably on countries offering concessions. This is always the playbook so the market can overlook the theatrics.

And the EU was not one of the 14. “We’re fully geared up to get an agreement in principle by Wednesday, and we’re firing on all cylinders to that effect.” - EU spokesman Olof Gill.

European Commission president Ursula von der Leyen and Donald Trump had a “good exchange” on trade in a telephone call on Sunday, raising hopes that a deal, however skinny, will be reached by Wednesday. “We want to reach a deal with the U.S,” said Gill. “We want to avoid tariffs. We believe they cause pain. We want to achieve win-win outcomes, not lose-lose outcomes”.

European stock markets were steady at the open on Tuesday after a positive session on Monday, except in London where Shell and the miners dragged the FTSE 100 lower. The DAX rose 1.2% yesterday, helped by Siemens Energy and Rheinmetall, while the CAC 40 added 0.35% as SocGen (+3.6%) and Safran (+2.0%) led gains. Shell stumbled to push the FTSE 100 lower by 0.2%. Cautious trading seen as we assess trade and earnings coming down the pipe.

US Treasury Secretary Scott Bessent said ‘several’ trade deal announcements likely in next 48 hours. “We are going to have several announcements in the next 48 hours,” Bessent said in an interview with CNBC, adding that “it’s going to be a busy couple of days.” So far though, no deals, only letters.

Even if we get a flurry of deals this week,  the next question will obviously be, says Morgan Stanley, for how long is this agreement valid? “The US-UK agreement avoided the question by simply not agreeing anything on the aspects of the agreement that would be more complicated. While markets may well react to headlines, we suspect the substance will take much longer to finalize,” the bank points out.

Trump adviser Peter Navarro on the White House's approach to monetary policy: "Why not lower rates and see what happens?" Why not indeed. It’s a bold strategy to ‘just see what happens’.

JPMorgan equity strategy update yesterday talked about stagflation risks in the US this summer as the second half progresses...still see Europe outperforming US and still very positive on emerging markets and think dollar will continue to weaken.

Still sounding the positive vibes on the UK too, citing valuation discount, top dividend yield and comparatively less trade sensitive. Currently the UK trades on a forward multiple discount of ~40% to the S&P 500 and ~13% to the Euro Stoxx 50.

They note that “positioning is light ... if global equities consolidate, the UK could be a relative winner”. They favour the FTSE 250 over the FTSE 100 on continued strength in sterling.

UK equities boast the highest dividend yield from a total return perspective of any of the big developed markets, even when you strip out the commodity sector. If bond yields trend lower than dividend strategies could be popular and UK has plenty of income funds.

So how is the UK economy doing? After last week’s shenanigans in parliament, gilts are calmer but is the outlook for the economy going to improve? UK GDP for May will be
released on Friday, with economists expecting a small increase in activity after April’s plunge that was the biggest drop since 2023.