Written by Ashwin Gurung
It was a positive week for the US market as positive economic data boosted market sentiment. June’s Non-Farm Payrolls added 147,000 jobs, exceeding the forecast of 110,000, and the unemployment rate fell to 4.1%. However, the decline in unemployment was largely caused by a drop in labour force participation, as some workers have stopped looking for employment and are therefore excluded from the calculation. The Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) also improved to 49%, while the Services PMI rebounded to 50.8%, signalling expansion. PMIs are key indicators of economic health and are based on business surveys, with a reading above 50 indicating expansion, while below 50 suggests contraction. Despite inflation now nearing the Federal Reserve’s 2% target, the strength of recent labour data suggests the Fed is unlikely to cut interest rates as soon as previously expected.
In terms of trade developments, while the US and Vietnam agreed on a new trade deal, setting a 20% tariff on Vietnamese exports (down from a proposed 46%) with no US tariffs in return, there has been little substantial progress in deals with other major trading partners, such as the EU, over the past week. With the 90-day tariff pause expiring on July 9th, and only the UK and Vietnam securing deals, there is growing anxiety around the situation. However, we have seen little evidence of tariff-driven inflation in either real-time data or official figures.
Much of the week’s attention also focused on President Trump’s tax and spending bill, which narrowly passed, including tax cuts, reductions to social welfare programmes, and increased military and immigration enforcement funding. While we don’t base our investment decisions solely on political developments, the bill has sparked debate. It is projected to add $3.3 trillion to the national debt over the next decade, increasing the risk of long-term economic instability and potentially leading to higher interest rates. However, this impact, like the anticipated tariff-driven inflation, remains to be seen.
The US market enjoyed a robust week nonetheless, with the S&P 500 and the more technology-focused Nasdaq-100 reaching record highs, up +2.3% and +2.0%, respectively, in GBP terms. Small and mid-cap companies, as measured by the Russell 2000 Index, surged +4.1% in GBP terms.
Elsewhere, in the UK, Prime Minister Keir Starmer faced a setback as 49 Labour MPs voted against proposed welfare reforms to Universal Credit and the Personal Independence Payments Bill, which aimed to cut disability and low-income benefits to ease fiscal pressures without raising taxes. Public and internal backlash forced Starmer to delay the reforms, leaving Chancellor Rachel Reeves grappling with a £4.8 billion shortfall, without increasing income tax or VAT. This uncertainty triggered a mid-week dip in the Pound Sterling and UK government bonds (gilts), as investors grew concerned about fiscal instability. As a reminder, we currently do not hold any dedicated UK bond managers in our portfolios. This is because, compared to global bonds or local-currency emerging market bonds, we find them less attractive in terms of returns, risk, and liquidity.
Nonetheless, economic indicators showed resilience. The UK economy expanded by 0.7% quarter-on-quarter in Q1 2025, the strongest growth in a year. The housing market also showed early signs of recovery, as the net mortgage approvals rose to 63,032 in May, a key forward-looking indicator of borrowing, recording its first rise this year, even as stamp duty thresholds reverted to pre-2022 levels on April 1. The FTSE 100 Index of large-cap UK-listed stocks posted a modest +0.3% gain. However, the fiscal uncertainty weighed on more domestically focused mid-cap stocks, with the FTSE 250 Index declining -0.6% over the week.
While short-term uncertainty is inevitable, we believe there are significant opportunities for investors who maintain a well-diversified, long-term approach. If you have any concerns, we encourage you to discuss them with your Financial Planner.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 7th July 2025.
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