Making sense of this crazy world
Trump and Xi Jinping are mates again. Well, perhaps not quite, but they have agreed to extend a tariff truce, push back export controls and reduce other trade barriers. This brings long-awaited stability, but it’s worth remembering that it is just an extension.
In the UK, gilt yields rose as Kier Starmer spoke at Prime Minister’s Question Time on Wednesday. He refused to discount the possibility that he would raise Income Tax, Employee National Insurance or VAT. Rumours are escalating this week that there may be a 2p hike in Income Tax, but a reduction in National Insurance. This is likely to hurt the pockets of pensioners, particularly.
However, the real reason gilt yields rose was because of the uncertainty around Rachel Reeves and her position, but yields fell again when Starmer backed her unequivocally.
US interest rates fell by 0.25% as expected, but Jerome Powell, the Governor of the Federal Reserve, warned against complacency and the expectation that rates would reduce again in December.
AI stocks wobbled on news of higher spending, but Amazon and Apple lifted sentiment on Thursday with strong earnings.
Later, we’ll take a look at the difference between trading and investing. It may be semantics, but there are different forces driving markets.
With equities returning to peak valuations, we ask the question of whether the UK now presents better value than the US?
This week’s content:
- Trump and Xi Jinping agree terms
- Is a hike in UK Income Tax on the cards?
- Powell sounds a blunt warning to markets
- Is the US still the place to invest?
- Are you trading or investing?
- Four reasons to stay invested
- Does the UK present better value than the US?
- Euphoria can dissipate very quickly – BYD are a case in point
- Summary
Trump and Xi Jinping agree terms
This was the first time they had held talks since Trump was elected. They made good progress and agreed on many terms:
- They agreed China would pause its controls on rare earths in return for the US not expanding its restrictions on Chinese companies
- The US will halve its fentanyl (an Opioid drug made in laboratories) tariffs on Chinese goods
- China will resume purchases of soybeans and other US agricultural products
- The US is also extending a pause on some of its reciprocal tariffs on China for a year.
Xi, according to Bloomberg, emphasised that dialogue is better than confrontation and he called for more communication between the two sides and co-operation in areas such as trade, energy and artificial intelligence.
Is a hike in Income Tax on the cards?
During Prime Minister’s Questions, Starmer was asked by the opposition leader as to whether he was going to stick by his 2024 election promises (referring particularly to Income Tax), but he was clearly not going to be drawn on this one.
Apparently, the Treasury is exploring measures of whether a hike of two pence in the pound for Income Tax could be one of the solutions for solving the UK’s fiscal deficit. This would be the first time Income Tax has been raised since the 1970s. One option being explored is to raise Income Tax by 2p and lower National Insurance by 2p.
This measure, if adopted, would hurt pensioners, landlords and the self-employed the most.
Continues…
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Risk warning
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.