Weekly Comment: Trade threats, tech disrupters, and rate cuts

Market overview

Last week, the MSCI All Country World Index (MSCI ACWI) experienced a slight dip of -0.4% (3.4% YTD), reflecting a cautious investor sentiment amid ongoing trade tensions and mixed earnings reports.

The United States

US large-cap stocks finished a volatile week down -1.0% (2.8% YTD), although blue-chip stocks rose modestly, marking their third consecutive week of gains. Tech stocks faced a challenging start to the week, driven by a sell-off following the emergence of DeepSeek, a Chinese artificial intelligence (AI) developer. DeepSeek's new open-source large language model (LLM) – which reportedly requires significantly less energy and processing power than other leading AI applications – sparked competitive concerns in the broader AI space. This led to a major dip in NVIDIA's shares, which fell nearly 17%. However, the Nasdaq Composite showed resilience, ending the week down only -1.6% (1.7% YTD).

Earnings season continued to bring positive surprises, with companies representing approximately 40% of large-cap market capitalisation reporting results. Notable large-cap tech companies – including Meta Platforms and Apple – delivered upbeat forward guidance, helping the major indexes recover some earlier losses. Growth stocks returned -1.5% (2.0% YTD), value -0.1% (4.6% YTD), and mid-cap -0.9% (2.6% YTD).

Europe (excluding the UK)

In Europe, the MSCI Europe ex UK Index ended the week 1.5% higher (7.0% YTD), buoyed by strong earnings results and the European Central Bank’s decision to cut interest rates. Major stock indexes saw gains, with Germany’s large cap rising 1.6% (9.2% YTD) and hitting a new intraday peak, France’s gaining 0.3% (7.8% YTD), and Italy’s adding 0.7% (7.1% YTD). The euro saw a slight depreciation against the US dollar, ending the week at USD 1.04 for EUR, down from 1.05.

The United Kingdom

UK large-cap stocks climbed 2.0% (6.2% YTD), while mid-cap stocks surged 2.2% (1.8% YTD). The British pound weakened slightly against the US dollar, ending the week at USD 1.24 for GBP, down from 1.25.

President Trump's tariff threats

Donald Trump's recent imposition of tariffs on imports from Canada and Mexico has added a layer of complexity to the market landscape. Effective Saturday, the US implemented a 25% tariff on a wide range of products from these two countries, including oil, lumber, produce, clothing, liquor, and auto parts. Energy imports from Canada, such as oil, natural gas, and electricity, are subject to a 10% tariff. While these tariffs aim to leverage economic pressure to achieve policy goals, they have raised concerns about higher prices and potential supply shortages across various sectors.

In addition to the tariffs on Canada and Mexico, Trump has issued threats to impose similar tariffs on European Union imports. Over the weekend, Trump confirmed that while European goods were spared for now, the EU could be next in line due to the significant trade deficit with the US. The President of the United States emphasised, "It will definitely happen with the European Union," highlighting the ongoing trade tensions.

Major shares in sectors such as automotive, aerospace, and consumer goods have shown some vulnerability. Companies like BMW, Airbus, and Unilever experienced dips in their stock prices in response to the tariff threats. However, the EU has vowed a "firm" response to any new duties, emphasizing the importance of maintaining low tariffs for economic stability. Investors remain hopeful that diplomatic efforts will mitigate the impact and support continued growth.

To listen to all the past Weekly Comment podcasts click here or subscribe via the apps below: