Brooks Macdonald Investment Bulletin - 7th April 2025

What has happened

Last week saw risk assets retreat following US President Trump’s tariff announcement on Wednesday evening: the US S&P500 equity index fell -4.84% on Thursday, and a further -5.97% on Friday, while over in Europe, the pan-European STOXX600 equity index fell -2.57% on Thursday, followed by a -5.70% on Friday. Coming into today, Asian markets have been weak, and that has also followed through into trading this morning, with the UK FTSE100 equity index down over -5% at one point shortly after the open and follows drops of -1.55% on Thursday and -4.95% on Friday (all in local currency price return terms).

The immediate tariff time-line ahead

Over the past weekend, Trump’s reciprocal tariffs have started to come into effect. On Saturday, the 10% baseline global trade went live – that will be followed by higher tariffs for certain countries from Wednesday this week – notably, by the end of this week, if Trump’s tariff plans are introduced as announced, China will be facing a cumulative tariff rate of at least 54%, which combines the two rounds each of 10% tariffs earlier this year, plus the addition of last week’s 34% hike (and higher given some sector-specific tariffs). A day later, on Thursday this week, China is due to impose its 34% retaliatory tariffs that were announced last week following Trump’s tariff ‘Liberation Day’ announcement.

Despite tariff news, a robust economic picture for now

Markets were not focused on the latest monthly US ‘non-farm-payrolls’ jobs report that landed on Friday, given tariff fears were uppermost in investors’ minds. However, the jobs report painted a robust picture: the US economy in March added +228,000 jobs – that was well above consensus forecasts that had been looking for median estimate of +140,000 and was the strongest print in three months. Meanwhile, the US unemployment rate was barely unchanged, coming in at 4.15% for March, up from 4.14% in February.

What does Brooks Macdonald think

There is arguably an important distinction surrounding the sell-off in markets over the past week: the retreat from risk assets has not been a repeat of past sell-offs which were triggered by fears originating foremost in the underlying economy, unlike past episodes, say, like the early days of the 2020 COVID pandemic, or the 2008 Global Financial Crisis - instead, last week’s melt-down in markets was arguably entirely policy-self-induced, driven by US President Trump’s policy of tariffs. The good news then is that this policy can, at least in theory, change – however, it is unlikely that Trump will of his own volition back down, so more likely is that other countries might have to make some token concessions, allowing Trump’s administration to save face with a policy de-escalation ‘off-ramp’. However, the longer this tariff battle-of-wills continues, the more risk it will seep into business and investor expectations which could cause more lasting damage, both economically and for financial markets.

Source: Brooks Macdonald

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