The Cambridge Weekly- 2nd March

The US President subsequently announced a new 10% global tariff, under an alternative law, that allows the government to put a new temporary tariff on goods from all countries for 150 days. It is not yet clear whether the estimated $175bn of tariff revenues collected illegally last year will need to be reimbursed; however the ongoing ambiguity is likely to cause companies to delay or scale back long-term trade and investment decisions as they await further clarity.

US and Iranian officials held another round of indirect talks in Geneva on Thursday, focusing on Tehran’s nuclear programme and ballistic missile capabilities. Oil prices have been rising in recent weeks, in anticipation of conflict-related supply disruptions around the Strait of Hormuz – a key oil bottleneck off the coast of Iran through which around 20% of global oil supply flows. Precious metals, which typically increase in price when geopolitical tensions rise, have performed well in recent weeks. After a large sell-off in both gold and silver at the end of January, both metals have bounced back healthily; gold is 11% higher than its beginning-of-February low, whilst silver has risen more than 25%.

US Equity Market:
US equities faced a volatile start to last week, with the S&P 500 falling over 1% last Monday, amongst the Supreme Court’s tariff ruling and potential White House policy response. This uncertainty also drove the VIX (a measure of forward looking volatility) up more than 10%; despite elevated investor caution, markets recovered meaningfully as the week went on, before the S&P 500 dropped over 1% again last Thursday. This was in reaction to Nvidia’s Wednesday earnings release, which saw the company beat revenue, profit and forward guidance estimates, but ultimately proved insufficient to shake seemingly persistent market scepticism surrounding AI demand sustainability and China-related revenue risks.

The Warner Bros bidding war between Netflix and Paramount intensified last Tuesday, with the latter raising its offer to $31 per share, above the former’s $27.75. Paramount had previously enticed Warner back in by increasing the likelihood of an improved cash offer for Warner shareholders, but the acquiree’s board has yet to determine whether the proposal is superior to that of Netflix. Elsewhere, President Trump’s State of the Union address last Tuesday evening, delivered to a joint session of Congress, drew close market attention but ultimately did not materially affect economic outlook.

UK Equity Market:
The FTSE 100 neared a record high last week, supported by stellar earnings from companies such as HSBC and Rolls-Royce. HSBC sent its shares to a record high last Wednesday, after beating earnings estimates and raising targets for the coming year. The bank, which is now the UK’s largest listed company, attributed its strong performance to its wealth business and core Hong Kong franchise. Its shares were up 6% on the day. Rolls-Royce, the UK’s largest aerospace and defence company, increased its profit targets and initiated a share buyback scheme last Thursday morning. The company has benefited from strong demand for commercial aircraft engines as well as increased orders for power systems used by data centres. Rolls-Royce is continuing its impressive run; shares were up 5% on the day and are now up almost 14-fold since the beginning of 2023.

Inflation, Interest Rates and Bond Markets:
UK government debt sales for the year to March 2027 are forecast to fall for the first time since 2023. This reflects the reduction in government borrowing needs following the UK Labour government’s tax-raising budgets, and a lower cost of financing debt due to mature in 2026-27. This comes after the government posted a record £30bn budget surplus in January this year, buoyed by UK borrowing costs falling to their lowest levels in over a year. The spread between gilts and equivalent swap rates – a commonly used gauge of oversupply – has narrowed to its lowest level since before the current government’s first Budget in October 2024.

What’s on the horizon
It’s a busy week ahead for economic data releases. In the US, attention will be on today’s release of the ISM Manufacturing Purchasing Managers Index (PMI) report for February – a monthly indicator of economic activity across the U.S. manufacturing sector. Since production happens right at the beginning of the economic cycle, the PMI is seen as a leading economic indicator offering a useful, forward-looking insight into sector momentum.

The Labour government’s Spring Statement will be in focus on Tuesday. Whilst the Spring statement is not as significant as the Autumn budget, the figures published alongside – which include estimates for growth, inflation, unemployment, government spending and tax income – will be of key interest to investors and can influence decisions on future fiscal policy.

In Europe, the eurozone will release its preliminary inflation print for February on Tuesday, whilst China’s February PMI figures are due on Wednesday, providing important insight into the health of the world’s second largest economy. Later in the week, US jobless claims are due to be released on Thursday, followed by nonfarm payrolls and unemployment figures on Friday. Europe will finish the week with the release of its fourth quarter GDP figures, offering a clearer view of the Eurozone’s economic growth towards the end of last year.

The Cambridge Team

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Source of financial market data: MorningstarDirect.