Markets rally amid US-China trade talks

Our weekly market overview from Quilter Cheviot

By Richard Carter, Head of Fixed Interest Research

Market overview

Trade tensions continued to dominate the headlines last week, but markets were encouraged by positive developments in the fractious US – China relationship after a call between Presidents Trump and Xi. Trump announced that senior delegations would be holding talks in London to iron out some of the differences particularly around export curbs in areas such as rare earths and tech.

Investors were also cheered by Friday’s nonfarm payrolls report which showed that the US labour market is so far weathering the tariff storm. Almost 140,000 jobs were created in May while the unemployment rate held at 4.2% and wage growth picked up, suggesting the Federal Reserve will remain on hold for the time being. However, other economic indicators received last week were rather soft with both the ISM manufacturing and services surveys dropping by more than forecast.

In Europe, the ECB cut interest rates again, this time to 2%, although Christine Lagarde indicated that they are nearing the end of the easing cycle. Inflation remains benign in Europe but increased infrastructure and defence spending particularly by Germany means that growth should pickup next year without the central bank’s help.

Overall, the MSCI AC World Index returned 1% last week in GBP terms with the US market modestly outperforming the UK and Europe. 10 year gilt yields were little changed but US Treasury yields rose following the payrolls report. Sterling also rose against the dollar on the week while the oil price bounced by 6% in USD terms following recent weakness.

Looking ahead, we continue to expect trade negotiations to drive market sentiment while the passage of Trump’s tax and spending bill through Congress will be closely watched.

Approver: Quilter Cheviot, 11 June 2025

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