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.
Typically, while geopolitical tensions tend to have a short-lived impact on markets, they are also unpredictable, and some anxiety among investors is understandable. It’s possible that we might face additional uncertainty over the coming days or weeks, with phases of escalation and de-escalation. Either way, market volatility could rise further.
We’ve held a diversified allocation across regions and asset classes for several months now due to elevated uncertainty. Last week, prior to these events, we bought more gold in our portfolios, meaning we now have an overweight position. We see the precious metal as a diversifier, protecting against policy and fiscal uncertainty in the US as well as geopolitical risks.
We also bought low-volatility equities, which tend to outperform broad equities when the market falls. We continue to hold broad commodities and inflation-protected bonds, which might both benefit from higher oil prices. Where permitted by client knowledge and experience, and regulations and investment guidelines, e.g. in our flagship funds, we also own an ‘insurance’ instrument that appreciates when US equities fall, potentially helping cushion the impact of any hypothetical drawdown. These more defensive assets help to mitigate the impact of bouts of volatility in portfolios.
In addition, the most recent jobs reports in the US continue to show a relatively resilient labour market. So, if the good inflation print for May does nudge the odds of a September rate cut higher, the absence of weakness in jobs creation may mean that the Fed would probably want a couple more benign inflation prints before committing in September. The risk is that the tariff effect on consumer prices may gain traction in the coming months.
While we're waiting to see what impact the tariffs have on inflation, we're also waiting to see what the tariff rates will be. The pause on Trump's reciprocal tariffs runs until the 9th of July, so there's still time for deals to be made. But that time is running out. And, in the meantime, Trump might possibly announce unilateral tariffs in the coming weeks. For now, only the UK has secured a deal with the US. While the US and China have only agreed to a framework agreement last week, it’s unclear what it entails, and market remained muted to the news.
So, Middle East aside, trade uncertainty stays high and puts this equity rally at risk of a short-term correction. This was one of the reasons underpinning our purchase of low-volatility equities. Tariff jitters also exert downside pressure on the US dollar, which fell further last week despite geopolitical tensions that tend to bolster the currency. That’s why we’ve lowered our exposure to the US dollar, as we see continued selling pressure.
In the UK, inflation data (Wednesday) is forecast to rise slightly to 3.6% (from 3.5% in April), ahead of the Bank of England’s meeting (Thursday), where Bank Rate is widely expected to remain at 4.25%. Elsewhere in the region, it’s also possible that the central banks of Sweden and Switzerland might decide to lower interest rates.
In Japan, the central bank reconvenes (Tuesday), but we don’t think it will raise rates despite underlying inflation pressure. Forecasters expect Japan’s May inflation (Friday) to stay at 3.6%, above the central bank’s target. However, downside risks to growth, given international uncertainty, will likely keep the Bank of Japan cautious. We can’t rule out a final increase in interest rates before the end of the year if inflation stays above target.
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Information correct as of 16 June 2025.
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