Markets & Investment Update

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.

On 15 April, we hosted a special 30-minute webcast focusing on the impact of US tariffs on the global economy and markets. Our speakers were Daniele Antonucci, our Chief Investment Officer, and Bruno Rovelli, Chair of EMEA Allocation Council Investment Solutions at BlackRock. We received many questions during the webinar. Below, we’ve answered those we didn’t have time to answer during the call.

Question #1: Global | How are you coping with volatility and uncertainty?

Given the risks of stagflation and elevated uncertainty, keeping long-term return and risk objectives in mind helps navigate a volatile environment. We continue to believe it’s more sensible to stay diversified across regions and asset classes, given such an elevated uncertainty so that a wobble in one part of the portfolio (like equities) can be offset by a gain elsewhere (such as government bonds). We’re also sticking with our existing quality investments in government, investment-grade corporate and inflation-linked bonds, in addition to gold and commodities.

Question #2: US | What is your assessment of US trade policy, and is there a path to resolution to the ongoing trade tensions that could soothe markets?

There’s a lot to cover to answer this question. First, the speed and intensity of the US protectionist trade policy agenda under the new Trump Administration has spooked markets. US equities, Treasuries and the US dollar have all fallen. Uncertainty runs high and could persist over the short- to medium-term horizon. This is because the rules imposed by the White House come with many exceptions, which reduces the effectiveness of rules. This is why volatility has been elevated since ‘Liberation Day in America’ on 2 April. It’s not unusual to see large intraday market swings as markets react to the incoming headlines, positively to de-escalation and negatively to escalation.

But, secondly, something has changed recently. Economic and market pressures have certainly pushed the US Administration to adopt a slightly softer stance, opening the door to negotiations. In other words, the balance of risks may be titled towards de-escalation rather than escalation. This could be a relief for markets. However, negotiations will take time, especially with China, as the US Administration hinted last week. And, with the US tariff rate standing at around 30% on average (if tariffs were to be enacted in full), compared to 2.5% at the end of 2024, the stagflationary impulse in the US (lower growth and higher inflation) hasn’t disappeared. Even if President Trump were to lower the tariff rate the US imposes on China to 50-65% from 145% currently, it would still be much higher than the 20% it has charged since mid-2019. We think markets are not entirely discounting these effects on the economy, focusing mostly on headlines for now.

Question #3: Europe | What’s the estimated economic impact of the European spending plans, and how are you positioned?

The economic impact of Europe’s spending plans will be spread over roughly a decade. In numbers, Germany unveiled a €500 billion infrastructure and economic reform fund on top of an increase in defence spending to at least 2% of GDP. That said, the impact will be limited in the short term as the disbursements will take time to feed through to the economy. We expect the German economy to stagnate again in 2025 before growing to 1-1.5% in 2026-27.

In addition, there are numerous plans by EU members to boost defence spending. These military expenditures are supported by the EU’s ‘ReArm Europe’ plan, aiming to mobilise up to €650 billion, effectively raising each member state’s defence expenditure to 3.5% of GDP. We expect these investments to have broad spillover effects across other sectors, from industrials and financials to healthcare and energy. This is a key reason why we’re overweight broad European equities in our portfolios and have extended our investment universe to include defence companies and funds, as well as defence being a dedicated theme in our thematic portfolio.

New investment decision | Redeploying cash into higher-yielding fixed income

Two weeks ago, when we rebalanced our portfolios, we didn’t go all the way to our previous equity overweight. We stopped at ‘roughly neutral’ (in lower risk profiles, while slightly overweight in riskier profiles). Plus, we maintained the US warrant, an ‘insurance’ instrument that appreciates when US equities fall (where client knowledge and experience, and investor guidelines and regulations, permit), and kept some cash to redeploy. Our view is that cash returns will be lower going forward due to interest rate cuts, so we want to redeploy that cash if opportunities arise. That time has now come. We’ve long held a reduced exposure to high-yield bonds because valuations weren’t compelling. The difference in high-yield interest rates compared to safe government bonds (known as the ‘spread’) was too low to warrant the extra risk. But now, spreads have widened to a level we think offers a reasonable compensation for the risks. So, we’re now raising exposure to high-yield bonds to a more neutral stance, funded by cash.

This Week | US job reports to make the headlines

Over the past two weeks, markets were focused on the news flow coming from the White House, as well as the ongoing earnings season. We expect this trend to persist in the coming weeks. This week, investors will turn to a packed economic calendar. GDP estimates for the first quarter in the Eurozone and the US both come out on Wednesday, which we expect to show a deceleration in growth. The print could be negative in the US due to strong import growth, as imports are subtracted from the calculation of the growth rate.

On a more forward-looking basis, we expect – in line with latest European data – weaker US consumer confidence in April (Tuesday). Further US data highlights include a likely softer ISM Manufacturing report (Thursday), and April’s job market report (Friday), which is very important for the US Federal Reserve’s assessment on whether to cut interest rates further later this year (we think it probably will), with consensus expecting slower job creation. Moreover, inflation in the Eurozone (Friday) should remain close to the 2% target on the back of lower oil prices, paving the way for the next rate cut by the European Central Bank in June (after it lowered interest rates in April). Last but not least, in Asia, lower purchasing managers’ indices (PMIs) (Wednesday) look likely in China in the light of tariffs, while the Bank of Japan (Thursday) at its meeting will likely hesitate to hike further at this uncertain juncture, in particular given the appreciation of the Japanese yen in recent weeks, which put a cap on imported inflation.

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Information correct as of 28 April 2025.

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Tariffs and markets, your questions answered