Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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London Quick Take - 12 June – Where Do Markets Go from Here?
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Confusion tariffs is not really helping: Trump said he will set unilateral tariffs rates within two weeks, while an earlier deal with China left tariffs at 55%, 30% from reciprocal tariffs, and 25% from fentanyl. US and China reached a preliminary deal on rare earths supply and eased student visa restrictions, but unclear tariffs and export controls dampened investor optimism. President Trump said the deal was “done,” pending approval from him and President Xi.
Confusion about the economy and inflation: US May CPI rose to 2.4% YoY, below the expected 2.5%. US inflation was a little softer than anticipated – everyone keeps saying the tariffs will show up in the data but not yet is the answer...is the economy too weak to pass on costs? If so then it’s very bearish stocks. Core +2.8%, with only the Shelter component at +3.9% pushing it higher… due to high mortgage rates, which is kind of ironic. The U.S. yield curve bull steepened, with the 2-year yield falling 10 basis points, reinforcing expectations of rate cuts. Fed to cut in September with one more by the end of the year.
Confusion about the Middle East also sowed doubt in the minds of investors – crude prices surged and stocks wobbled as Trump questioned chances of Iran nuclear deal and then Tehran said it would hit US military bases if attacked...not good for risk sentiment but always one to fade the rumour until the sand starts flying. Crude prices have come off sharply this morning.
There is less confusion about the UK economy – those very weak labour market figures with payrolls down over 100k have now met a 0.3% decline in UK GDP in April, the steepest monthly drop since 2023...we are now seeing a real deterioration in the economy and the government seems to think that taxing us more will help. And for those that crow about ‘investment’ by govt capital spending plans inked in the Spending Review, it’s all front-loaded in this parliament. Sterling took a leg down on the figures.
London Quick Take - 12 June – Where Do Markets Go from Here?
Key Points
- Good news on US trade and inflation doesn’t lift stocks
- Sterling falls as UK economy contracts 0.3% in April
- Quantum computing stocks surge on Nvidia comments
- Oil surges on Middle East tensions as US moves personnel
- FTSE flat as European indices slide sharply
Positive news on trade and lower-than-expected inflation failed to lift stocks on Wall Street...there are signs of real weakness in the economy and we’ve had a good run...not the time to make a fresh all-time high on Wall Street at least but also not the time to throw in the towel – Vix lowest since February reflects complacency...time to chop sideways and see a little downside from here. Technicals look shaky on the major indices. The S&P 500 closed down 0.27% to snap a three-day win streak while the Nasdaq fell 0.5%. The good news is well and truly baked in and the bad news is being ignored. The FTSE can probably make a new all-time high as it's so close and bulls are desperate to clinch it but the DAX is rolling over and the US is looking prone to a consolidation at best.
Confusion tariffs is not really helping: Trump said he will set unilateral tariffs rates within two weeks, while an earlier deal with China left tariffs at 55%, 30% from reciprocal tariffs, and 25% from fentanyl. US and China reached a preliminary deal on rare earths supply and eased student visa restrictions, but unclear tariffs and export controls dampened investor optimism. President Trump said the deal was “done,” pending approval from him and President Xi.
Confusion about the economy and inflation: US May CPI rose to 2.4% YoY, below the expected 2.5%. US inflation was a little softer than anticipated – everyone keeps saying the tariffs will show up in the data but not yet is the answer...is the economy too weak to pass on costs? If so then it’s very bearish stocks. Core +2.8%, with only the Shelter component at +3.9% pushing it higher… due to high mortgage rates, which is kind of ironic. The U.S. yield curve bull steepened, with the 2-year yield falling 10 basis points, reinforcing expectations of rate cuts. Fed to cut in September with one more by the end of the year.
Confusion about the Middle East also sowed doubt in the minds of investors – crude prices surged and stocks wobbled as Trump questioned chances of Iran nuclear deal and then Tehran said it would hit US military bases if attacked...not good for risk sentiment but always one to fade the rumour until the sand starts flying. Crude prices have come off sharply this morning.
There is less confusion about the UK economy – those very weak labour market figures with payrolls down over 100k have now met a 0.3% decline in UK GDP in April, the steepest monthly drop since 2023...we are now seeing a real deterioration in the economy and the government seems to think that taxing us more will help. And for those that crow about ‘investment’ by govt capital spending plans inked in the Spending Review, it’s all front-loaded in this parliament. Sterling took a leg down on the figures.
Markets
An end-of-day dip meant the FTSE 100 didn’t quite reach a new high record but it did achieve its second highest close ever. The blue chips ended the day 0.14 per cent higher at 8,865, a little under the 8,871 record closing level. The FTSE is flat in early trade on Thursday, outperforming European indices which are off sharply on the broad risk-off mood. Higher crude prices seems to be the main driver of the FTSE holding the line as index heavyweights BP and Shell both rose over 1%. Reports that the US is reviewing its Aukus partnership with the UK and Australia hit defence shares with Babcock down over 2% and BAE Systems and Rolls-Royce also a tad weaker. I looked at this sector earlier this month.
Spending Review winners...just some thoughts here - none of us are winners really as it will mean more tax. Costain - Looks well placed for stronger infrastructure investment as well as growth in nuclear. Vistry - £39bn for affordable homes is good news for this leader in the sector. Also check across Barratt, Crest Nicholson, Persimmon, Redrow, Bellway and Taylor Wimpey. Kier - order book is +43% in three years and stands to benefit from prison investment, and other projects. Rolls-Royce – nuclear and defence.
Finally... Quantum computing stocks surged - Quantum Computing was up 25% and Rigetti Computing up 11% as Nvidia CEO Jensen Huang turned bullish on quantum computing uses, saying it is reaching an "inflection point". I looked at these recently.
Spending Review winners...just some thoughts here - none of us are winners really as it will mean more tax. Costain - Looks well placed for stronger infrastructure investment as well as growth in nuclear. Vistry - £39bn for affordable homes is good news for this leader in the sector. Also check across Barratt, Crest Nicholson, Persimmon, Redrow, Bellway and Taylor Wimpey. Kier - order book is +43% in three years and stands to benefit from prison investment, and other projects. Rolls-Royce – nuclear and defence.
Finally... Quantum computing stocks surged - Quantum Computing was up 25% and Rigetti Computing up 11% as Nvidia CEO Jensen Huang turned bullish on quantum computing uses, saying it is reaching an "inflection point". I looked at these recently.
DAX rolls over after touching trend channel resistance but look for support around the March highs around 23,477.
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