MARKET COMMENTARY – APRIL 2025

Global markets experienced challenging conditions in March, influenced by economic trends, central bank policies, and geopolitical events. European equity markets extended their strong performance, while US stocks struggled. Emerging markets had mixed results, with some benefiting from a weaker US dollar while others were impacted by inflation and trade concerns. Bond markets fluctuated with changing interest rate expectations, and commodities remained steady due to supply constraints and demand shifts. Energy prices saw moderate gains as production cuts and geopolitical tensions affected supply dynamics. Industrial metals faced some pressure from demand fluctuations, while agricultural commodities benefited from strong seasonal trends.

US equity markets declined as investors reacted to new tariff proposals and regulatory uncertainty from the Trump administration. The technology and semiconductor stocks fell sharply due to increasing competition, primarily from Asia, and the effects of the Trump administrations new tariffs on global trade. AI-related stocks continued to attract investor interest, contributing to sector-wide resilience after its significant drop in February. Investors remained cautious about potential policy changes and their impact on corporate earnings and global value chains.

European equity markets outperformed their global peers, driven by positive corporate earnings and new fiscal policies pertaining to borrowing. Financial stocks led the gains, while a weaker currency helped multinational companies improve their revenue outlook. Hopes for fiscal expansion and infrastructure investment also supported market sentiment. The relaxation of fiscal rules in Germany encouraged investor optimism. However, concern remains about the potential impact of tariffs from the United States on European export market, focused predominantly on cars, consumer discretionary and pharmaceutical goods.

The UK equity market also saw modest gains, while business sentiment remains low, the marker benefited from stable consumer demand. Internationally exposed UK companies saw increased earnings potential due to currency fluctuations, while domestic sectors such as financials and retail showed resilience. Additionally, expectations of potential interest rate cuts provided further support to investor confidence. Concern remains surrounding the UK Chancellor’s fiscal ‘head room’ regarding her Spring statement and the impact of a global trade war on UK finances. With the likelihood of needing to cut, borrow or increase tax as global trade uncertainty intensifies and global economic growth remains subdued.

Emerging markets had a mixed performance. Some Asian markets saw gains, especially in China’s technology sector, while others struggled with inflationary pressures and trade disruptions. Latin American markets faced challenges due to economic uncertainty and shifting government policies. The weakening of the US dollar provided some relief to certain emerging economies, helping them manage debt repayments and trade balances more effectively.

Central banks remained cautious. The US held interest rates steady but sent mixed signals on future cuts. The Bank of England suggested possible rate reductions despite persistent inflation concerns. The European Central Bank remained data-dependent, adjusting policies as needed. Investors closely monitored central bank communications for any indications of future monetary policy shifts.

Bond markets reflected uncertainty around interest rates and economic risks. US Treasury yields initially rose on inflation concerns but later eased as economic data softened. European bond markets showed mixed movements, with some government bonds under pressure amid discussions on fiscal expansion. UK government gilts saw moderate gains despite short-term volatility.

Trade policy developments influenced market sentiment, with new US tariffs creating uncertainty and relative reductions in international markets as global value chains absorb these new costs. Potential for further tariffs on imports from Canada and Mexico under the USMCA agreement raised concerns about further impacts to inflation and global economic growth. Investors closely watched responses from affected countries, as prolonged trade tensions could shape global market trends and investment strategies. Negotiations between key economies remained a focal point for global trade stability, however, the Trump administration have suggested that most major economies and US trading partners will be recipients of these new tariffs regardless of negotiations.

The combination of shifting fiscal policies, geopolitical developments, and economic recovery signals will shape market dynamics. Central bank decisions will be pivotal in guiding asset allocations, with interest rate adjustments having far-reaching effects on equity and bond markets. While growth-focused sectors, such as technology, remain appealing, the risks associated with inflation, trade tensions, and supply chain disruptions merit some caution.

Total returns in GBP to 31/03/2025

    *March 2025

Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk

This commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.