“You’ll find the spot and I’ll find the money”, Blake Shelton

Equity markets continue to edge higher, with the energy sector leading the way as the price of oil shows signs of recovery. The S&P 500 has returned to positive territory for the second Trump presidency. While economies, particularly the US economy, struggle to bring inflation back down to its 2% target, the US government should be grateful that oil prices remain in the low $60s. A spike in oil prices would further complicate efforts to ease monetary policy and increase the risk of an economic slowdown. Global bond yields, which have been rising over the past few weeks, have at least stabilised now. The rise has been well documented due to factors, including concerns about government credibility, primarily stemming from a loss of confidence in US economic policymaking. In particular, Trump’s big beautiful bill, which is projected to increase the federal deficit by $3.8 trillion and add $3.3 trillion to the national debt over the next decade,

A few weeks ago, I suggested that the pain trade was a continued rise in equities. John Authers, in his daily Bloomberg article this morning, draws on this very point, quoting Alexander Altmann of Barclays Equities Tactical Strategies, who believes: “The vast majority of the investor base remained either wedded to a bearish narrative and/or positioned in such a way that a further rise in US equities would be a problem for their current portfolio setup.” It appears once again that many money managers panicked in early April, convincing themselves that the Trump tariff policy almost guaranteed a recession in the US. The Vix fear index climbed to levels last seen during COVID, as a sure sign of panic.

On the economic front, yesterday’s UK employment report confirmed that wages continue to rise well above inflation, and as a result, the unemployment rate is ticking higher. Fewer people are getting paid more.

There was some modest positive news yesterday for the US economy, as there was a slight bounce in small business optimism according to a National Federation of Independent Business survey. Later today, we have the monthly US Consumer Price Index for May. Inflation is expected to show an increase, as the effects of Trump’s tariff policies begin to be felt. Overall prices are anticipated to grow by 2.5% on an annual basis, according to economists surveyed by FactSet. That’s a rise from the 2.3% growth year on year in April. The core rate is also expected to rise modestly. Next week is significant as the Federal Reserve meets to decide on interest rates. A change to the Fed funds rate is now not expected. Mr Trump is likely to have those fingers twitching to explain to Mr Powell where he is going wrong again.