Market Musings 5/8/2025
Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!
UK #Tariffs deal distracts markets from cautious Fed
Markets rise on the first announced #Tariffs trade deal shrugging off a downbeat Fed meeting. Here’s what you should know.
So, the Fed held rates flat… I know “breaking news”. However, their tone is growing more cautious－warning of potential higher #Inflation with slowing growth and weakening #LaborMarkets aka stagflation. #RateCuts expectations are pulling back as well, but still expected by the July meeting. Markets initially fell post meeting, but rebounded in power hour Wednesday on late #Tariffs news.
On Thursday, the US announced its first tariff trade deal with the UK. The UK will be open for US agriculture exports like beef and ethanol as well as eliminating trade barriers to chemicals and machinery. In return, the US is removing the steel and aluminum #Tariffs and lowering auto to 10% for the first 100K cars per year. Markets revived some of the tariffs optimism with markets up 1% across the two days.
So, are markets ready to rally now? We still think it’s premature. While it’s positive that a deal is getting made, the UK was never a big issue for the US in the first place. The US is the one with a trade surplus to the UK－so the UK never had the larger “reciprocal” #Tariffs in the first place and the universal 10% #Tariffs is still in effect anyways.
We see the deal as just a distraction from the Fed meeting and an attempt to show progress ahead of more important and likely stalled #Tariffs negotiations.
Which ones are those? In terms of trade, the UK is relatively small compared to the EU, China, Canada and Mexico.
The EU criticized ongoing negotiations earlier in the week and just unveiled plans for a massive response to US #Tariffs if a deal isn’t made. That sounds more like they’re gearing up for a trade war than close to negotiating an agreement.
China has repeatedly said the US #Tariffs must be rolled back before negotiations can take place. The US is meeting with China on Saturday, but it’s just talks and unlikely for any deal to be made yet. Meanwhile, the reports of shortages is growing louder and louder.
We continues to see markets as too frothy－hoping for a quick resolution and recovery. However, we believe the economy is already showing signs of stagnation and unlikely to recover as quickly as the White House changes its mind. We would heed the Fed’s cautious warning and see more how things play out rather than the market’s “everything will just be fine” mindset.
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The statements, opinions and analyses presented here are provided as general information. This article is the opinion of the author. Anything within this article should NOT be considered an investment recommendation or advice. See Ursa’s full disclosures here.
Original Photo by Pixabay.