Following the “trade deal” between the US and the UK, Trump told people to “better go out and buy stock” and that the US will “be like a rocket ship that goes straight up”. We’ve heard this before but more importantly:

Do we trust him?

Markets are experiencing a sugar rush from the recent deals struck with China and the UK with the expectation that more trade deals will be made with major trading partners such as the EU. The S&P 500 index opened 2.5 per cent higher on Monday as well as the tech-dominated Nasdaq Composite climbing to 4.2 per cent. The 10-year US Treasury bond yield increased by 0.08 percentage points indicating that investors are reallocating capital from bonds into stocks. Gold also opened 2.5 per cent lower but quickly rebounded suggesting persistent uncertainty expectations. Nonetheless, a wave of optimism has washed over markets with trade relations seemingly improving with major economies. 

I would urge investors to err on the side of caution and to look at the bigger picture. 

Firstly, we are still on the 90-day break from the reciprocal tariffs revealed on “Liberation Day” and these trade deals act as a small win for a cataclysmic first 100 days of Trump’s second term. We know that Trump is fanatic about a good headline and public perception and the deals struck with the UK and China serve to bolster his image. These deals are NOT set in stone, not legally binding, and there are still plenty of negotiations to be had to nail the details of such trade details. Trump proclaimed on Monday that tariffs would be raised if no formal trade deal was struck after the 90 days. The details certainly matter in these instances and there is still plenty of time for things to go wrong. With a track record of unpredictability and ignorance to the law, we know that Trump has the propensity to surprise us and not in a good way. 

Secondly, has Trump given up on his dream to bring back manufacturing jobs to the US? This was what the reciprocal tariffs were all about was it not? To bring an end to other countries taking advantage of the US and reducing trade imbalances. If he hasn’t given up on his policies of re-shoring, then investors should expect to see tariffs return. Establishing Trump’s true intentions will be the key here (albeit incredibly difficult). I think it would be naive to think things will return to “normal” off the back of these trade deals. 

Thirdly, let’s talk about the US-UK deal. The deal is as follows:

• Removal of a 25 per cent US tariff on UK steel and aluminium
• US tariffs on British cars is now 10 per cent from 27.5 per cent only for the first 100,000 imported
• Access to one another’s beef market where British farmers may now export to the US
• The 10 per cent ‘reciprocal’ tariff remains
  
  

So in sum, not an awful lot was agreed here and nothing substantial. The legality of the deal is also flimsy and is subject to negotiations down the line. The UK was never hit the hardest from the tariffs so it is interesting both parties rushed to strike a deal first.

The steel and aluminium concessions are relatively menial given the small size of the UK’s steel industry which was only recently bailed out a few weeks ago by the government. Alan Beattie writes that the deal “is closer to a protection payment to a mob boss than a liberalising agreement between two countries”. Coming from someone who recently finished watching the HBO show “The Sopranos”, I see the similarities. 

Newly elected PM of Canada Mike Carney said that Canadians were “unimpressed” by Trump’s second state visit further pushing the narrative that the UK has caved in too early and are desperate to please the Don. 

In relation to our clients gold holdings, structural drivers of gold have not changed. We have reached the point where not-so-bad news is now good news especially for financial markets. If we take a step back and look at the gains in equity markets from Monday, it hardly seems like a sustainable bull run. With the mix of underlying uncertainty, still relatively high valuations in stock markets, still a 30 per cent tariff on China which is historically high, and a baseline 10 per cent tariff across the board, it hardly seems like these are the conditions required for a “rocket ship that goes straight up”.