27/01/25: Trump’s executive orders, Japan rate hike & UK trade policy

Monday Espresso Podcast - 27th January 2025

[00:00:00] Nathan Sweeney: It is Monday, the 27th of January. Today I'm joined by Sarah Todino, Assistant Portfolio Manager on our funds and analyst for the US and Europe. Good morning, Sarah.

[00:00:09] Sarah Todino: Good morning, Nathan.

[00:00:10] Nathan Sweeney: So as always, quite a busy week in markets last week. So Sarah, let's recap on markets last week. How did they perform?

[00:00:17] Nathan Sweeney: What was working? What wasn't?

[00:00:19] Sarah Todino: So it's been a big week for markets with the inauguration of Donald Trump on Monday. The S&P 500 reached a record high this week on the back of an AI investment plan proposed by Trump. There was also a call for cuts in interest rates and oil prices. So bond yields and the oil price fell shorter term following that comment.

[00:00:40] Sarah Todino: The market reacted well to some positive earnings. For example, Netflix reported Q4 earnings beat and a surge in subscribers. US banks have also done well in earning season with strong sentiment following potential deregulation under Trump. Global markets also rose towards the end of the week on the back of a potential softer stance to tariffs on China from the Trump administration.

[00:01:06] Nathan Sweeney: Okay, so quite interesting there because, obviously, you have mixed feelings about the Trump administration and what that means for markets. And markets really had a cautious start to the year, but you can see some real positive momentum coming through. And some of that's linked to executive orders. So I just thought I'd start by explaining what an executive order is.

[00:01:26] Nathan Sweeney: Because there's been a lot of them signed this week. So, if we look at the Trump administration last time around, there were 220 executive orders signed during his first term. And if you compare that to the Biden administration, there were 155 executive orders signed. So, what is an executive order? So, ultimately, it's a directive, and, you know, basically, you're directing federal officials to take a course of action or to refrain from a course of action. And the president has the authority to do that as long as those actions are not unconstitutional. So, if they don't impact the constitution, then there's no legal pushback. But ultimately, it's just saying to a specific department, like a health department, we want you to take this strategy going forward, or we want you to refrain from this strategy going forward. So Sarah, let's talk about some of the executive orders that were signed last week.

[00:02:33] Sarah Todino: There are more than 100 executive orders signed by Donald Trump on day one. Trump's looking to reverse Biden's clean energy policies and incorporate pro fossil fuel policies, which will have a major impact on global climate.

[00:02:46] Sarah Todino: Trump was citing a national energy emergency to accelerate oil and gas production. Furthermore, the US will be rewithdrawing from the Paris Climate Agreement. And this is a global agreement to limit global temperature rises, and has more than 200 countries signed up. The US withdrawing is a move that could see others follow and leaving the agreement.

[00:03:09] Sarah Todino: Rumors of Argentina, for example, as well. And we are starting to see evidence of other countries weakening climate targets too. Canada pushed back on its target for a net zero electricity grid to 2050. That's adding 15 years onto the initial guideline.

[00:03:27] Nathan Sweeney: Yeah, so you can see there that, you know, clearly the US does lead a lot of countries in terms of its policies.

[00:03:32] Nathan Sweeney: So some of these policies may gain traction elsewhere. Now, so what does it mean for markets? Ultimately, if we look at the Biden administration, there was a big focus on clean energy. So think solar panels, wind farms. And for the Trump administration, they want to see growth coming through exploration and production into the oil sector.

[00:03:53] Nathan Sweeney: So really that's what's happening here. And you can see lower oil prices as a result on the week, because if you have more production coming through, that helps to reduce oil prices. Plus President Trump also called on OPEC to reduce oil prices to limit inflation on consumers. But what you can really see is that, you know, the impact of some of these orders on different sectors within the market.

[00:04:16] Nathan Sweeney: Okay. So that gives you a good example of executive orders, how they work and the implications they can have on markets. So Sarah, what else was happening around the world last week?

[00:04:25] Sarah Todino: Other news, we've also seen the Bank of Japan raise rates by 25 basis points to 0.5% this week. And this was in line with expectations and following December's inflation rise to 3%.

[00:04:38] Nathan Sweeney: Okay, and we did also have news out in the UK. So, the UK is looking to join the Pan Euro Mediterranean Convention. So basically this is a custom scheme which includes nations from Europe, the Middle East and Africa and ultimately it would reduce some of the barriers to trade that could help spur growth in the UK.

[00:04:59] Nathan Sweeney: So that was announced by Keir Starmer and we'll see how those negotiations unfold and obviously the temperature check as to how people perceive that, but ultimately, you know, that should help with the UK growth, which has been lackluster. And so it would be a positive at an economic level. And so Sarah, obviously we're in the middle of earning season.

[00:05:18] Nathan Sweeney: There's lots happening in markets, but what are we expecting next week?

[00:05:22] Sarah Todino: Looking ahead to next week. We've got interest rate decisions from the Fed and the ECB, but policymakers will be digesting the moves of the Trump administration so far. We've also got unemployment rates for Japan and Europe. And some consumer confidence data across the regions.

[00:05:38] Nathan Sweeney: Okay, perfect. So that kind of wraps up this week's podcast. Thank you very much for joining me today. Very insightful as always. Hopefully our listeners found that insightful too. And I'd always ask our listeners, if you do have any questions you'd like us to bring up on the podcast, please do send them through.

[00:05:53] Nathan Sweeney: We would love to address them on the show. Thank you and have a great week.