Key Market Takeaways:

• Trump boosts sentiment: U.S. stocks and the dollar advanced after former President Trump encouraged investors to buy equities, fueling market optimism.
• BoE cuts, but signals caution: The Bank of England lowered interest rates by 25 basis points, meeting expectations; however, a more hawkish voting split suggests a cautious path ahead for further cuts.
• UK trade terms update: Under a new trade agreement, the UK will avoid tariffs on steel and auto exports, though a 10% base tariff will still apply across other sectors.

Today’s Market Update:

U.S. Markets & Trade Developments

• S&P 500 gained, then pulled back: U.S. equities rallied after Donald Trump encouraged investors to "go out and buy stock now" ahead of U.S.–China trade talks scheduled for Saturday. However, gains faded later in the session, with the S&P closing just below 5670—around its Liberation Day level.
• Mixed Asian session: Asian equity markets were uneven overnight following Trump's remarks, which included optimism in China but uncertainty around trade discussions with Japan, South Korea, and India.
• Dollar strengthened on positioning and data: The Bloomberg dollar index rose 1% on the back of reduced short positions, strong U.S. data, and the Fed’s hawkish tone. Lower-yielding and emerging market Asian currencies—many of which rallied last week—were the main losers.

Technical note: USDJPY broke above 145.00 and EURUSD dipped below 1.1250, raising the prospect of further unwinding in USD short positions. Despite this, Barclays' medium-term bearish view on the dollar remains unchanged.

Bank of England Policy Decision

• Rate cut delivered, but with surprises: As expected, the BoE cut rates by 25bps to 4.25%, but surprised markets with a split vote: 2 members wanted no change, 5 voted for the 25bp cut, and 2 pushed for a larger 50bp cut.
• Economic outlook downgraded: The Bank revised forecasts for growth, inflation, and wages lower, while maintaining cautious guidance. Despite this, Barclays continues to see the June meeting as a potential live event, with further sequential cuts likely starting from September.

Market reaction: Rate cut expectations for June have been scaled back—pricing dropped from 14bps to around 5bps—reflecting the BoE's more cautious tone.

UK–US Trade Deal Announced

• Tariff relief for key exports: The UK secured its first trade deal with the U.S. since the global trade war began. Key terms include: Full exemption from tariffs on British steel and aluminum. First 100,000 UK-made cars exported to the U.S. annually to face a reduced 10% tariff. Streamlined customs and reduced trade barriers for U.S. goods entering the UK.

Outlook for GBP: While the deal keeps a general 10% baseline tariff in place, it is seen as a net positive for the UK trade outlook. Barclays Research views the agreement as supportive of a stronger pound.

9th May 2025

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