ALPHA INSIGHTS: Interim Bulletin - 5/9/25

What We Learned This Week

News headlines are indicating that the U.S. has reached a “full & comprehensive” trade deal with the U.K. Was it ever going to be anything else? The U.K. runs a trade deficit with the U.S. Our two countries are unwavering allies and essentially cousins. In short, this is not exactly a surprise. Nevertheless, the equity markets closed up yesterday, but not as strongly as they were indicated to ahead of the widely expected announcement. Today, they’re giving some of it back. The market’s reaction to news that the 10% tariff would remain in effect permanently was a surprise to many who thought that the tariff was simply a negotiating tool to achieve something closer to free-trade agreements with all of our trading partners. The news is supportive of the view that tariffs will lead to higher prices and eventually higher inflation. But tariffs are a tax. And taxes are inherently deflationary, not inflationary.

More importantly, according to Treasury secretary Scott Bessent, China has apparently agreed to meet with U.S. trade representatives. To negotiate? Or, to deliver their demands? We don’t know yet. But the market initially liked that headline as well, but not so much after further reflection.