Frankie's Market update: 22nd January 2025

Trump’s Second Term- what does this mean for us?

It’s officially happened, the day that seemed unlikely to pretty much all of us in the first part of 2024- Donald Trump is back in the oval office and commencing his second term as president of the United States. His inauguration has set the stage for a widespread shift in both the US and global economies, and he has come straight out of the blocks with a flurry of executive orders, revoking or halting many Democratic initiatives and policies.

The first 90 days is significant for any government, fresh into their posts and wanting to make their mark. For Trump, his start comes under the careful watch of the world waiting in anticipation for what is to come. But what does all this mean for you and your finances? 

Trade Wars & Tariffs:

There has been a lot of news and headlines surrounding the Trump administration and their plans to impose tariffs on imported goods into America. This is also an area that we have spoken about previously in  market updates. Figures have been proposed, such as the 25% tariff potential on Canada & Mexico. Forming part of Trump’s strategy to reduce the US trade deficit and boost domestic manufacturing. However, one area that needs to be carefully considered is that such tariffs will likely lead to higher costs for consumers and businesses, potentially leading to a spark in inflation and placing a question mark as to how quickly interest rates can be reduced.

Around the world from China to Europe and the UK there is a sense of uncertainty as to what trade tariffs could mean. As Kemi Badenoch highlighted ‘the UK is vulnerable to these trade tensions, although she notes we are in a better position than China and the EU to handle these challenges'.

Currency Fluctuations: The Strong Dollar Dilemma

News of Trump’s second term in the Oval Office and his administration plans for growth in the US, has seen the US dollar surging to dizzy heights over recent weeks, a four-decade record high to be precise! This strength could make US exports more expensive and lead to retaliatory measures from other countries. For the UK, this could have an impact on the cost of goods from tech to pharmaceuticals.

Bond Markets & Rising Gilt Yields:

It has been a relatively volatile start to 2025 throughout the world’s bond markets. With rising gilt yields being the focus of attention. In the UK blame has been pointed at Rachel Reeves and her Autumn budget. But I think the problem is much wider than just the UK. We are seeing gilt yields creeping up across the developed world, in the US and Europe, and arguably it is the US that is leading the way.  

Thirty-year gilt yields have come down slightly from two weeks ago but are still 5.13%, figures we haven’t seen in decades. Moreover, the interest on government debt reached 4.87% the highest points it’s been since 2008.  Creating some volatile and challenging times for both markets and the chancellor and raising the question are her recent tax rises being swallowed up by additional borrowing costs for the government? And more importantly will this lead to further tax rises being required in the future?

But what does rising gilt yields mean and what impact will this have on you?

Rising gilt yields could potentially signal that inflation is creeping back up and with that comes a question mark as to how quickly interest rates can be reduced and pressures alleviated from borrowers/ mortgage holders.

Gold Prices:  Safe haven in times of uncertainty?

With all the political and economic shifts, investors are flocking to gold as a safe -haven. Gold prices have edged higher, bolstered by the strength of the dollar. This trend could be a sign that investors suspect that volatility is ahead. As always, when thinking about investing we are thinking about several elements:

• Time Horizon- taking that medium to longer term view
• Diversification – Ensuring your portfolios are spread across different asset classes and geographies
• Attitude to Risk – it is easy to fall into the trap that more risk equals greater reward but remember assets like Gold can provide some ballast to your portfolios and give you protection on the downside.

Looking ahead: Navigating the New Normal

As we move forwards, this week I wanted to part with this message; governments come and go, but it is important to remember that companies and businesses operate regardless of those in power. Now of course decisions of our leaders cause there to be winners and losers, some decisions may even lead to casualties within business. But in other cases, businesses will thrive.

So, hold onto the fact that historically the market trajectory is up and take this time as an opportunity to focus yourself of your longer-term goals, and avoid getting caught up in all the noise.

Frankie x