Market Commentary 17th June 2025 – from Naigil Johnson

The UK economy contracted by 0.3% month on month in April 2025, its first monthly decline in half a year and the steepest drop since October 2023. This followed a 0.2% rise in March and was worse than the expected 0.1% fall. Several factors appeared to have weighed on growth, including higher energy and regulated service costs, increased employer National Insurance contributions, a rise in Stamp Duty Land Tax rates and the impact of major new tariffs announced by President Trump.

The UK’s unemployment rate inched up to 4.6% in the three months to April 2025, slightly higher than the previous 4.5% and in line with market forecasts. This was the highest level seen since the summer of 2021, as rising payroll taxes and a 6.7% increase in the national minimum wage appeared to be slowing wage growth and affecting hiring.

Inflation in the Eurozone remained close to the European Central Bank’s 2% target, supporting its recent decision to lower key interest rates by 0.25%. In Germany, consumer prices edged up by 0.1% in May 2025 compared to the previous month. Meanwhile, France saw consumer prices dip by 0.1% in May, its first monthly decline since November, which was largely driven by falling energy and service costs.

The Eurozone’s trade surplus fell to €9.9 billion in April 2025, down from €13.6 billion a year earlier and well short of the €18.2 billion expected by markets. It was also a significant drop from March’s record €37.3 billion, with much of the decline due to a sharp reduction in the chemicals surplus after new US tariffs came into effect.

The US and China agreed on the framework of a trade deal, with China agreeing to remove export limits on rare earth minerals and other crucial industrial parts. Meanwhile, US tariffs on Chinese products will be set at 55%, and China will apply 10% tariffs on goods coming from the US. Whilst the agreed deal together with softer US inflation data, gave US equity markets a lift mid-week, the gains were later wiped following rising tensions in the Middle East. Although the uncertainty regarding US tariffs still lingers, particularly as we approach the end of the 90-day pause in higher tariffs, the nonpartisan Congressional Budget Office estimated last week that tariffs could reduce the US debt pile by $2.8 trillion if they remain in place.

Consumer sentiment in the US showed a strong rebound in June 2025, with the University of Michigan’s Consumer Sentiment rising to 60.5, up from a near record low of 52.2 in both May and April. The data would suggest that American households grew more optimistic about current conditions and the broader economic outlook in the US.

US consumer prices rose by 0.1% in May 2025, a slight slowdown from April’s 0.2% increase and below the 0.2% rise markets had expected. Shelter and food costs both climbed 0.3%, with prices for groceries and dining out also up by 0.3% each. US producer prices also edged up 0.1% month-over-month in May 2025, rebounding from a revised 0.2% decline in April but still falling short of the expected 0.2% increase.

The National Bureau of Statistics figures showed that new home prices across 70 Chinese cities fell by 0.22% in May, marking the steepest monthly decline in seven months. Meanwhile, used home prices saw an even sharper drop of 0.5%, the largest decrease in eight months, highlighting continued weakness in China’s property market.

The economic data suggested that the Producer Price Inflation in Japan fell 0.2% month on month in May, marking the first monthly decline in nine months. Industrial production in Japan decreased by 1.1% in April 2025, exceeding the preliminary estimate of a 0.9% fall and reversing a 0.2% increase recorded in March. This was the second monthly drop in production in 2025. In Hong Kong, the manufacturing production grew by 0.7% year-on-year in the first quarter of 2025, easing from a 1.0% gain in the previous period

GBP / EUR – Current 1.1748 Previous 1.1871

The Pound continued its increase against the dollar, rising by 0.32% and reaching its highest level in the past 3 years. Against the Euro however, the Pound fell by 1.04%.