The infoshot to help kick-start your week
UK and US agree “Economic Prosperity Deal”
Late on Wednesday evening, Trump took to Truth Social to tease the news of a “trade deal” between the US and a “big and highly respected country.” By the time he kicked off his press conference at 10am, we knew the country in question was the UK.
With Congress needed to approve any major trade deal, the announcement is more of an agreement to reserve or cut some of the tariffs that Trump has imposed on certain goods. There will be plenty of negotiations to follow over the months ahead, but the major announcements so far include:
- Car tariffs cut to 10%. Trump’s 25% tariff on cars and car parts has been cut to 10% for a maximum of 100,000 UK cars. Any cars exported over the quota will be hit with a 27.5% import tax. Rolls Royce engines and plane parts will also be free of US tariffs.
- The 25% tariff on steel and aluminium has been scrapped. However, it remains unclear whether this will apply to steel derivative products like gym equipment, machinery and furniture.
- Digital service tax stands (for now). There’s no change to the UK’s 2% digital service tax that is placed on tech firms that make £25m from UK users annually.
- The UK has removed the 20% tariff on US beef exports and raised the tariff quota to 13,000 metric tonnes. However, growth hormone treated meat will still not be allowed to enter the UK market.
Rate decisions in the UK and US
The Bank of England decided to lower interest rates from 4.50% to 4.25%. The nine-member committee was divided with five voting to cut rates to 4.25%, two voting for a bigger reduction to 4% and two opting for no change.
The Bank’s governor, Andrew Bailey, hinted more rate cuts could follow in the months ahead, and that he was “still of the view that the path, gradually and carefully is downwards.” The vote split and Bailey’s comments have prompted the market to price in reduced odds of a third rate cut this year.
Across the pond, the Federal Reserve decided to hold its target rate between 4.25% and 4.50%. Officials said they want to wait on more data to see how Trump’s tariffs, and other significant policy decisions, have affected the US economy.
They warned that the economic outlook is less certain and that the “risks of higher unemployment and higher inflation have risen.” Fed Chair Jerome Powell said the fallout from Trump’s tariffs meant it was “not at all clear” what the bank should do next. In response to the decision, Trump called Powell “a fool” and claimed that lower rates would “be like jet fuel” for the US economy.
Exports rise in China, and deal to slash tariffs announced this morning
On Friday, data showed Chinese exports rose higher than expected to 8.1% in April. Shipments meant for the US fell 21% (year on year) as exports to India, Southeast Asia and Europe rose to offset the US sales decline.
Widely covered in the press and noted by economists last week, the number of container ships in US ports dropped dramatically towards the end of April. However, they could be busier again because, as I write this morning, a deal between the US and China to slash tariffs has just been announced.
Both countries have agreed to move their tariffs down by 115% and put in place a 90-day trade war pause. It’s a significant climbdown from the 145% tariff the US placed on China, and China’s retaliatory 125% tariffs, and far exceeds market expectations. The Chines yuan has jumped to a six-month high on the back of the announcement. Stock markets across the globe have followed suit as investors welcome the news with open arms, and the S&P looks set to open nearly 3% higher today. Gold has fallen 3%, however it’s still up 25% since January.
Coming Up:
- US core inflation rate YoY, Wednesday 14 May 2025 at 13:30pm
- UK GDP Q1 data, Thursday 15 May 2025 at 07:00am
- Japan GDP data, Friday 16 May 2025 at 00:50am
Notice:
For regulated financial advisers and investment professionals only, Copia does not provide financial advice, and the contents of this document should not be taken as such. The performance of each asset class is represented by certain Exchange Traded Funds available to UK investors and expressed in GBP terms selected by Copia Capital Management to represent that asset class, as reported at previous Thursday 4:30pm UK close. Reference to a particular asset class does not represent a recommendation to seek exposure to that asset class. This information is included for comparison purposes for the period stated but is not an indicator of potential maximum loss for other periods or in the future.
