09/06/25: Musk–Trump clash, tariff talk & rate cut caution

Monday Espresso Podcast - 9th June 2025

[00:00:00] Nathan Sweeney: It is Monday the 9th of June. Today I'm joined by James at a Bond fund manager here at Marlborough. Good morning, James.

[00:00:07] James Athey: Hi Nathan. Good to be here.

[00:00:08] Nathan Sweeney: So firstly, I'll start with a quick recap of what was happening in markets before we delve into the nuance of what was driving markets underneath the surface.

[00:00:17] Nathan Sweeney: So let's have a quick look at equity. So equities were broadly flat to slightly up for the week. So we had Europe up close to about a percent. T he standout was really the hang saying, so this is over in Hong Kong, market was up about 2% for the week. So James, any kind of views on what was driving that?

[00:00:34] James Athey: Yeah, I mean there's nothing super obvious, but there were obviously, communications between President Xi In, in China and President Trump in the US and it did feel like the tone coming from that conversation. What was a bit more conciliatory? I think just broadly the Asian region has been interesting.

[00:00:50] James Athey: We've had an election in Korea, which has resulted in potentially a more economy and equity market friendly leader after they've had some fairly serious political disruption recently. So the Korean stock market was up quite strongly as well, and I think that's helped drag the region as a whole higher.

[00:01:06] Nathan Sweeney: Okay. And so if we start with what was happening actually specifically last week, it was early in the week where we got the news that we were going to see an increase in US tariffs on steel and aluminum. So just to recap, we have a 25% tariff on steel and aluminum, and this is now being increased, so it's going up to 50%, but luckily for the UK.

[00:01:29] Nathan Sweeney: That you know, is not going to be implemented in the UK and we just have the current level of 25% remaining in place. So just wondering what your thoughts are on tariffs?

[00:01:40] James Athey: Yeah, obviously sort of a week or so ago we had this court ruling in the US which essentially sort of raised the notion that previous tariff policy from the president, was actually illegal, but outside of the specific clause in the constitution that the president has used to pass the broad tariffs.

[00:01:59] James Athey: There are lots of other means by which the president can tariff, and one of them does specifically relate to these section 232 tariffs. So that's an aluminum and steel. So it almost feels like because, you know, teacher has taken his ball away with respect to broad tariffs, he sort of reacted in a bit of a petulant way and pulled the lever harder on that stuff that he thinks he's got legal grounds to do so.

[00:02:20] James Athey: But as you say, from the UK perspective, good news for us because, you know, the recent deal has carved us out from that and increased to 50%.

[00:02:28] Nathan Sweeney: Yeah. And a lot, lot people are concerned about the impact that tariffs will have on inflation, but we saw some inflation figures coming out of Europe and it's not really coming through yet, so what's the view on European inflation?

[00:02:40] James Athey: Yeah, obviously, I mean, US tariffs kind of have an asymmetric influence on, you know, prices within the US and without the US what I mean by that is it should raise prices within the US in the US economy, but it's probably gonna have the opposite effect sort of lower economic activity and potentially lower prices outside of the US and the Eurozone already had fairly low inflation on a global basis, and the path lower had been a bit more consistent, so the ECB this week has certainly been patting themselves on the back for a job well done.

[00:03:15] Nathan Sweeney: Yeah, and just mentioning the ECB there, obviously they were in action too, so they've lowered rates again, so what next from the ECB?

[00:03:22] James Athey: Yeah.

[00:03:22] James Athey: What was interesting about that was President Lagarde was quite explicit, really about her belief that they are close to the end. The market had been pricing. Maybe another cut and a half taking the rate to round 1.5% over the next six months or so. But President Legarde really raised the prospect that we might be closer to the end.

[00:03:44] James Athey: So the market sort of pushed those expectations down and further into the future. And a number of banks now may be thinking that they're either done or it's one more cut potentially in September, and then they're done. So that would take their policy rate to either 1.75% or 2%, where it's now.

[00:04:01] Nathan Sweeney: Yeah, but I think, yeah, they will be the envy of many regions given the fact that rates are much lower there.

[00:04:06] Nathan Sweeney: But you know, the real big news was the bust up on X or Twitter, as is previously known on Thursday night. So Elon Musk and Donald Trump previously best of friends, but doesn't seem to be the case anymore.

[00:04:21] James Athey: Yes, the president tech bromance has turned very sour very quickly. It's a funny one. Obviously these are two quite interesting, unique characters and they tend to wear their hearts on their sleeves and sort of speak first, shoot first, and ask questions later.

[00:04:38] James Athey: And, all of that really has come out in this latest spat. You know, we should note that there did seem to be some deescalation, again, via social media, right at the end of the week. But ultimately, I think Elon Musk is caught between his need and his desire to manage the companies that he owns or is chief executive of and his desire at to sort of a political level to see the US government on a more firmer fiscal footing.

[00:05:03] James Athey: And it feels like those two needs desires are in conflict at the moment. And he really caught between two storms.

[00:05:10] Nathan Sweeney: It was interesting to watch it play out. It was actually like. The playbook that Trump has in place, which he's talked about in the Art of the Deal. Typically where he creates chaos, makes it personal, threatens to walk, manufactures a crisis, and ultimately then after all of that declares victory and the chart of the week, actually this week we'll be doing a segment on that.

[00:05:30] Nathan Sweeney: So if you haven't seen it, please do take a look 'cause we go into that in a little bit of detail. So is there anything else of note to mention for the week?

[00:05:37] James Athey: Well, I mean, it's worth noting that the Tesla stock price was down pretty aggressively in response to this feud. I mean, you know that I'm not an equity investor, Nathan, and so when we have these conversations, I tend to have this sort of bond market view.

[00:05:50] James Athey: But I look at Tesla trading at 150, 160 times earnings and scratch my head. It's had a fairly significant decline in response to this falling out. It's down around 14% over the space of two days, which I think does speak to the idea that there's a heck of a lot of good news in the price there.

[00:06:08] Nathan Sweeney: Okay, James, as always, excellent summary.

[00:06:11] Nathan Sweeney: Thank you for joining us on the show today. If we just have a quick look towards the week ahead. And some of the data coming out is gonna be focused on inflation. So we've got Chinese inflation data, we also have US inflation data, and so investors will definitely be focused on that. We've got unemployment data coming out in the UK as well, and we do have GDP figures in the US. So bit of data coming out, but I think clearly the focus would be on trade, tariffs and Trump's relationship with world leaders and obviously business people alike.

[00:06:42] Nathan Sweeney: Thank you and take care.