Wall Street hits record high on trade deal hopes; UK car exports to US halve due to tariffs – business live

Global markets rallied to new highs, with the S&P 500 and Nasdaq hitting records, driven by optimism over progress on US-EU and US-China trade deals and the removal of the US's Section 899 'revenge tax', which benefits UK businesses. This positive sentiment contrasts with a significant slump in UK car production, impacted by US tariffs, and concerning US economic data showing declining personal income and consumer spending alongside rising core inflation, complicating the Fed's policy outlook. Meanwhile, China's central bank acknowledges persistent domestic and external economic challenges.

Analysis

US equity markets, including the S&P 500 and Nasdaq, have reached new record highs, propelled by strong investor optimism regarding trade policy developments. This sentiment is largely fueled by expectations of a forthcoming US-EU trade agreement, a reported breakthrough in US-China negotiations, and the confirmed removal of the US Section 899 retaliatory tax measure, which is a significant positive for UK companies with large US operations such as Barclays. However, this market ebullience is set against a backdrop of deteriorating economic fundamentals. The UK car industry has reported a 76-year production low, with shipments to the US plummeting 55.4% in May due to tariffs. Concurrently, US economic data reveals concerning trends: personal incomes fell 0.4% and consumer spending dipped 0.1% in May, while the Federal Reserve's preferred inflation metric, core PCE, accelerated to 2.7%. This combination of weakening consumer activity and rising inflation presents a complex challenge for the Fed's monetary policy. Further caution is warranted by warnings from China's central bank about weak domestic demand and from Heathrow Airport about softening US business travel, signaling broader economic uncertainties.

Key Decisions for Investors

• While the market rally is driven by positive trade sentiment, investors should closely monitor the divergence with weakening US consumer data and rising core PCE inflation, as this gap presents a key risk to equity valuations.
• Re-evaluate exposure to the UK automotive supply chain given the severe, tariff-driven production slump, while recognizing that UK-domiciled multinationals with significant US revenue streams may see improved prospects from the removal of the Section 899 tax provision.
• Pay heightened attention to upcoming Federal Reserve communications, as the conflicting signals of slowing growth and accelerating inflation create significant policy uncertainty and could challenge the market's current assumptions about interest rate cuts.
• Assess portfolio companies for supply chain resilience and strategic responses to trade policy, as exemplified by Nike's plan to shift manufacturing from China in response to a stated $1bn tariff impact.