WeeklyWatch – Trump’s tariff threats stall market gains

4th February 2025

Stock Take

Shaping the month ahead

At the end of January, European equity markets finished at record highs. But with US President Donald Trump’s sweeping tariff announcements at the weekend (albeit being slightly dialled back last night), it looks like February may be a more challenging month…

Trump pivots on (some) tariffs

Over the weekend, Trump confirmed 25% tariffs for Canadian and Mexican goods (excl. Canadian energy imports, which will have a 10% tariff) and 10% for China.

It didn’t take long for the leaders of those nations to respond. Canadian Prime Minister Justin Trudeau announced a 25% tariff on a wide array of US goods, while China and Mexico have promised tariffs of their own will follow, but have yet to reveal them.

However, last night (3rd February) saw the president agree to postpone Canada and Mexico’s tariff by one month, following talks with Trudeau and the Mexican president, Claudia Sheinbaum.

And it’s not just Canada, Mexico and China that Trump has his eye on – the EU is also part of his future tariff plans, as he told the BBC:

“It will definitely happen with the European Union.”

But when it comes to the UK, Trump has been less explicit. As a result, Prime Minister Keir Starmer will likely be required to strike the right balance of ‘resetting’ the relationship with the EU all while avoiding a reprisal from Trump.

Markets react to potential trade war

The full impact of a possible trade war between the US and the EU, Canada, Mexico and China will take time to unpack, but so far, markets have responded as expected. The FTSE started the week down 1.3% and markets in France, Germany and Japan were down by more than 2%.

Falls caused by the tariffs were reasonably broad-based; however, car manufacturers were hardest hit, with the shares of a number of European car manufacturers falling over 4% on Monday morning.

Hetal Mehta, Head of Economic Research at St. James’s Place, commented on the tariffs:

“The news of tariffs levied by the US…will inevitably raise questions on how central banks – especially the European Central Bank (ECB) but also the Bank of England (BoE) – should respond should they also be subject to such protectionist measures. It is too late for the BoE to adjust its forecasts and assumptions for global growth, but any further weakness in the euro area economy will likely spill over to the UK. For some MPC members, the case for a pre-emptive cut may be enhanced. Ultimately, the US consumer has been the powerhouse for the economy, and one way or another is now on the hook for paying for these tariffs (higher inflation, higher interest rates or perhaps further down the line, higher taxes).”

US AI dominance threatened

It wasn’t a good start to the week for the US tech sector with China’s DeepSeek AI model making people question whether America’s lead in the field was untouchable. It further raises questions regarding the market value assigned to several AI-related companies.

US tech corporation Nvidia has grown extraordinarily over the last few years, but it recently suffered the biggest single daily drop in stock market history. Close to $600 billion was taken from its value on Monday last week, but there was a slight recovery during the second half of the week and the share price eventually finished down around 15%.

The Head of Asia and Middle East Investment Advisory at St. James’s Place, Martin Hennecke, said:

“Just when it seemed that the US tech/AI rally and dominance would last forever, the news on DeepSeek as a potential industry disruptor hit home hard. There is uncertainty about specific market impacts as yet, and it may still turn out to be less of a bombshell than initially thought. However, it does serve as a timely reminder of the importance of maintaining prudent risk management and diversification at all times.”

UK struggles for consistency

On home soil, there was a 2% rise in the FTSE 100, which meant that the UK index ended the month up over 7%.

But UK market positivity was mismatched with the wider economic performance of the country. We’ve been experiencing a long period of weak economic growth and above-target inflation. What’s more, business confidence has been subdued, and the government have been left with limited financial options to encourage growth.

Many FTSE 100 companies get the most of their income from overseas, however. Currently, the pound is weaker against the US dollar (and other currencies), meaning that earnings that come back to the UK are worth more when converted back into sterling.

Market positivity in Europe

January proved to be a good month for European markets too. Similar to the FTSE 100, the MSCI Europe ex UK hit record levels at the end of the month.

The ECB cut their interest rates last week. Because of the weak economic news from across most of the bloc, the ECB are likely to continue to make interest rate cuts as the year progresses.

February will certainly be one to watch for the EU amid Trump’s tariff comments.

Wealth Check 

Top tips for maximising your ISA returns

“Max out your ISAs,” is something you’ll frequently hear about as we draw closer to the tax year-end. Topping up before 5th April should be an important annual task for savers and investors. But while it’s important to put as much money into your ISAs as you feel possible, you should still ensure that what you hold is giving you great value for money.

Ensuring your ISAs deliver on your goals

Life goals shift and those changes will invite the need to rebalance your mix of ISAs and their rate of return. If interest rates continue to come down slowly, it’s more important than ever to make sure that your ISAs are ‘earning their keep’.

Cash versus Stocks and Shares ISAs

Many ask which is better. The answer: it’s not an either/or decision. Both investments have their pros and cons, and you can use both of them to your advantage for longer-term financial planning.

Cash ISAs

A Cash ISA is easy to access and can work as a ‘rainy day’ fund to cover unexpected expenses; however, their rate of return is fixed by interest rates. If you’ve had any Cash ISAs for more than five years, then the good source of emergency cash stored up can become a big part of your long-term savings plan.

Long term, you’re unlikely to get the same growth from a Cash ISA as you would from a Stocks and Shares ISA. You may want to consider how much you put into a Cash ISA.

Stocks and Shares ISAs

If you’re saving for longer term goals, which can include retirement or sending children off to university, then Stocks and Shares ISAs may be a good option due to their better potential for growth.

If you have a lot of money in a Cash ISA or savings account, you could be missing out during positive periods in the markets. Interest rates tend to be less ‘reactive’ during these periods of prosperity or stability and Cash ISAs often take longer to ‘catch up’ when it comes to returns.

Always worth bearing in mind…

Markets fall as well as rise, and by choosing to invest solely in Stocks and Shares ISAs, you’re accepting a much higher risk with your investments.

For most people, having a combination of Stocks and Shares and Cash ISAs provides the best balance, as it gives them financial resilience for both the short to medium term and provides more opportunities to create more wealth in the long term.

Make this tax year-end count

Having a regular catch-up with your adviser is always a good plan, but as we come up to tax year-end it’s even more important. Especially if your long-term plans or family circumstances have changed in the last 12 months.

There’s still time to make some tax-smart tweaks to your ISAs and investments – your family will feel the benefit. Discover our dedicated tax year-end portal here:

The value of an ISA with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.

An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.

The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.

Please note that Cash ISAs are not available through St. James’s Place.

In The Picture

The Nasdaq-100 turns 40!

For over four decades, the Nasdaq-100 index has been tracking some of the most innovative companies globally, including tech giants Apple, Microsoft and Nvidia and even big presences in the consumer and healthcare sectors.

The index was launched in 1985 and is weighted by market capitalisation – which means that the biggest companies have the biggest influence.

The below chart reveals the Nasdaq-100’s performance from its beginning to the present day.

Past performance is not indicative of future performance.

Please note it is not possible to invest directly into the Nasdaq-100 and the figures shown do not take into account any charges applicable to the appropriate investment wrapper or any relevant tax charges.

The Last Word

“I wouldn’t say there’s a timeline, but it’s going to be pretty soon.”

– US President Donald Trump talking about when potential EU tariffs might come about.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

 

SJP Approved 03/02/2025