The main outlier is Japan who are still seeking a deal and at first glance the higher tariffs on peripheral small Asian economies with significant trade surplus’s to the US are not so relevant but are presumably to stop rerouting of goods. So far we haven’t seen much inflationary or activity fallout from the tariff uncertainty and precious little effect on risk assets as US stocks explore new highs. Unfortunately, Trump doesn’t take this as markets ignoring his tariffs, instead he sees it as their validation. 

Trumps propensity to lash out at anyone and everyone remains unabated and the predictable falling out with Elon Musk has led him to announce he is setting up his own rival political party. The attacks on Chairman Powell have continued and widened to include more of Trumps associates and now includes the cost of the refurbishment of the Fed’s HQ. They are also trying to push the idea of a ‘shadow Chairman’ who would take over in May following Powells term, whose pronouncements would carry more weight than his. 

The One Big Beautiful tax bill was signed into law. The potential effects of these tax cuts on US borrowing levels are dramatic if the tariff experiment doesn’t raise the revenues that Trump is seeking. The bill lifted the debt ceiling by $5Trillion but the tax cuts are forecast to reduce US tax revenue by $4.5Trillion over the next decade.

Europe appears to have ended up with a 10% tariff deal which is encouraging. Chancellor Merz’s EUR46 Billion tax break package has been passed into law by the German upper house and there are high hopes that this will provide a quick boost for their economy.

Concerns about UK Government fiscal policies and the state of the country’s finances returned with a vengeance. The governments defeat over welfare reform has turned their sums upside down and the public distress of the Chancellor was rather sad. Cue the long end of the Gilt market getting mullered again as the curve steepened significantly. 

Primary issuance broke more records in Euros although Sterling issuance remained subdued and we are unlikely to see any longer dated issues to come to market as it is plainly more expensive to lock in long term funding. Higher term premium continues to be priced in to sovereign curves. Credit spreads have had a very stable, and latterly strong, period and inflows into IG funds remain healthy.
 

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