I thought I would start with some good news this week regarding UK gilts. A fall in borrowing costs has helped yields fall back to a similar level to the time of the October Budget. Yields had previously risen, a sign of potential stress in the economy.
However, this good news has been offset in part by a weaker economic outlook, although revised figures state that GDP increased for the UK in the last quarter of 2024, albeit only by 0.1%.
Recruitment consultants, widely regarded as a bellwether for the UK economy, are reporting that there is a significant slowdown in companies hiring new staff.
In the US, the Trump show continues to grab the headlines, firstly regarding his turning Gaza into a US Middle East Riviera. He then announces publicly, that he will give concessions to Russia before negotiations have even begun. Furthermore, he wants exclusivity from Ukraine concerning rare earth elements and in return, the US will provide a ‘security shield’ in peace times. It appears he wants Europe to pay for the cost of post-war security and reconstruction. The reaction was mixed but on Thursday, European markets posted strong returns at the prospect of peace and easier trading conditions.
The so-called Trump trades have been on fire since his election, but sentiment appears to be stalling as investors begin to digest the possible impacts on trade and the US economy.
The gold price continues to rise with the spot price rising circa 10% so far in 2025. The question is, why?
There has been a lot of conjecture about the AI space, especially since the announcement from DeepSeek in China. We are cognisant about valuations, but we don’t think for one minute that the DeepSeek announcement derails the momentum around the development of AI and its applications.
Much has been written about the problems domestically within China, and its issues with the property market, meaning many investment strategists have swerved Chinese companies, despite rafts of stimuli. The Hang Seng Index rose by 3.69% overnight and has risen by 15.27% since the start of the year. This has had a positive impact on the Far Eastern markets in general.
Lots going on and at a fast pace!
So, on this week’s agenda:
- Gilts recover some of their poise
- A slowdown in company hirings
- The impact of Trump on Europe
- Trump trades are now less frothy
- Gold continues to attract investors
- AI development continues unabated
- The Hang Seng is flying
- Summary
Gilts recover some of their poise
Gilt yields have been on the rise since the Budget back in October and conversely, gilt prices have fallen. However, a fall in borrowing costs means that UK government bonds have eradicated much of their losses since the Budget.
The sentiment around Gilts was extremely poor but it just goes to show how quickly things can change. Helping matters is that sentiment has improved around global bonds and due to a sluggish UK economy, it is expected that interest rates will fall more quickly than previously anticipated.
However, it’s a fine line, because if interest rates fall too much, inflation could rise and if the Office for Budget Responsibility (OBR) downgrade economic forecasts then we could see an about-turn for gilts.
Continues…
Want to get this in your inbox?
Our CEO, Gary Neild, writes engaging Market Commentaries every week. If you would like to receive the full version straight to your inbox every Friday, please join our communications list.
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.