This note contains an overview of our market views, what we are watching, and our portfolio strategy. Any reference to portfolio positioning relates to our Flagship Solution. Clients with bespoke discretionary or advisory portfolios should consult their Client Advisor for the latest update on your portfolio.
As to the implications of this ruling, US trade partners are now more inclined to wait for legal clarity on tariffs before finalising any trade discussions. This reduces the chances of near-term trade deals and could lead to a prolonged period of uncertainty. The fiscal package, which is yet to be approved by the US Congress, might also be impacted. Revenue gains from tariffs, although not a part of the package, are considered an important offset to proposed tax cuts. If tariff revenues turn out to be much lower than foreseen, members of Congress could demand fewer tax cuts or higher spending reductions. Given the upward pressure of tariffs on US inflation, any material change to tariff policy could also impact monetary policy outcomes.
While the court ruling opens up the possibility of a significantly lower effective tariff rate in the US compared to previous expectations, it is unlikely that the outcome will change for most major US trading partners. Tariffs are a central pillar of the Administration’s economic agenda. Even if the Supreme Court were to uphold the USCIT decision, the government would likely pursue other avenues to impose tariffs. Therefore, we think our base case of slower (but positive) US growth and above-target inflation is still valid.
In fixed-income markets, bond yields fell over the week, partly because US inflation was lower than expected. Personal consumption expenditures (PCE) inflation, the US Federal Reserve’s (Fed’s) preferred inflation measure, fell to 2.1% in April. Despite supportive inflation data, we expect the Fed to hold rates for now as it awaits more data to assess the impact of tariffs on inflation. Businesses will likely pass on the higher import costs to consumers, at least partially. However, most of this impact should be a one-time price hike, allowing the Fed to continue its rate-cutting cycle later this year. Futures markets are pricing in about two Fed rate cuts in 2025, which is in line with our expectations. With the European Central Bank (ECB) in a better position to lower interest rates, coupled with lingering worries around US deficits, we prefer European bond markets over the US. Therefore, we hold fewer US Treasuries in portfolios than usual in favour of short-dated European bonds.
As to the US dollar, which didn’t move much over the week, we expect it to weaken over time against major currencies. High valuations, narrowing US growth, differences in interest rates compared to the rest of the world and a waning appetite for US assets among foreign investors should continue to exert downward pressure on the dollar.
On Tuesday, US order intakes for April will provide an insight into the impact of tariffs – as will the US trade balance on Thursday, the first release since “Liberation Day” on 2 April. Among the more forward-looking indicators, investors will look out for May’s Purchasing Managers’ Indices (PMI), with the PMI for the vast services sector released by the ISM (Institute for Supply Management) on Wednesday. On Friday, investors will closely watch the US job market report for May to see where non-farm payrolls and the unemployment rate stand. This data is crucial for the Fed’s 18 June meeting, where we expect the key policy rate to be kept unchanged. Finally, in China, PMI releases are due on Tuesday and Thursday, possibly indicating a further stabilisation in the economic growth outlook.
Important Information
Information correct as of 2 June 2025.
This document is designed as marketing material. This document has been composed by Brown Shipley & Co Ltd ("Brown Shipley”). Brown Shipley is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales No. 398426. Registered Office: 2 Moorgate, London, EC2R 6AG.
This document is for information purposes only, does not constitute individual (investment or tax) advice and investment decisions must not be based merely on this document. Whenever this document mentions a product, service or advice, it should be considered only as an indication or summary and cannot be seen as complete or fully accurate. All (investment or tax) decisions based on this information are at your own expense and at your own risk. You should (have) assess(ed) whether the product or service is suitable for your situation. Brown Shipley and its employees cannot be held liable for any loss or damage arising out of the use of (any part of) this document.
The contents of this document are based on publicly available information and/or sources which we deem trustworthy. Although reasonable care has been employed to publish data and information as truthfully and correctly as possible, we cannot accept any liability for the contents of this document, as far as it is based on those sources.
Investing involves risks and the value of investments may go up or down. Past performance is no indication of future performance. Currency fluctuations may influence your returns.
The information included is subject to change and Brown Shipley has no obligation after the date of publication of the text to update or amend the information accordingly. Accordingly, this material may have already been updated, modified, amended and/or supplemented by the time you receive or access it.
This is non-independent research, and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
All copyrights and trademarks regarding this document are held by Brown Shipley, unless expressly stated otherwise. You are not allowed to copy, duplicate in any form or redistribute or use in any way the contents of this document, completely or partially, without the prior explicit and written approval of Brown Shipley. Notwithstanding anything herein to the contrary, and except as required to enable compliance with applicable securities law. See the privacy notice on our website for how your personal data is used (https://brownshipley.com/en-gb/privacy-and-cookie-policy).
© Brown Shipley 2025