The big headlines | Quarter 2 2025

In this regular piece, we summarise the key headlines from the previous quarter and highlight any short-term impact they’ve had on investment performance.

Feel free to download and share it directly with your clients or read our interpretation below for further commentary.

Liberation Dismay: April 2nd

There can be little doubt the biggest ‘market event’ came right at the start of the 2nd quarter. Liberation Day, saw the Trump administration unveil its widely anticipated Trade Policy and range of tariffs. Despite how widely discussed the policy’s intention had been, and how motivated Trump was to deliver upon it, the market crumbled as the level of tariff rates, and their breadth of coverage, far exceeded expectations. Adding insult to economic injury, markets would also fret over the rather rudimentary equation used to calculate the tariff rates, as well as the peculiar selection of countries captured, including the uninhabited Heard and MacDonald Islands, a territory dominated by Macaroni Penguins!

But just as the broad political community were unable to forecast the scale of tariff imposition, so the same cohort were unable to predict how quickly Trump would turn. Be it the equity or bond market riot, or the impact they each have on approval ratings, or whether it was part of the ‘grand strategy’ all along, in just a matter of days post ‘Liberation Day’, Trump was offering up extensions and touting preliminary deals. Markets rallied hard and never really looked back for the remainder of the quarter.

The willingness of the Trump administration to reverse course was a reassuring force for markets, and though individual negotiations might provoke moments of anxiety, we would suggest investors’ ‘peak trade fear’ is past. That said, the end game will still be an additional tax burden for US importers, and one US consumers will ultimately bear. Such an outcome supports the broad investment trend of ‘lightening up’ on US assets in our view.

It is worth reflecting that despite how assured investors may feel about the trade saga today, we recall it certainly looked and felt like a crisis at the time. On that basis, we were delighted to be able to up the frequency of Invesco’s weekly Ben Squared Podcast to keep investors informed of the fast evolving and market moving saga. Please follow this link to enjoy Ben Squared’s ‘steady hand’ during peak trade frenzy.

Middle East’s Fleeting Impact: June 13th

It was a troubling quarter for news flow out of the Middle East as tensions between Israel and Iran turned militarily kinetic. Much ink has been, and will continue to be spilled on this topic, with the variables vast and complex. As investors of course, it is our fiduciary duty to remove emotion from our investment process and, instead, focus on the data, and the motivations and constraints of each actor. On that basis, it is (perhaps) fascinating to note that not a single barrel of oil has been lost in its passage from Middle Eastern fields to its end customer since the Hamas attacks on October 7th, 2023. Indeed, OPEC oil production was higher in June than it was in May. With this in mind, it is less surprising to note the oil price fell more than 10% over the course of the second quarter and the associated Israel/Iran ‘spike’ lasted just 2 weeks.

This episode is a stark reminder that whilst much attention had been placed on the threats to the ‘Straits of Hormuz’, the probability of closure remains very low. This 33km stretch of water, running between Iran and Oman, sees approx 20-25% of the world’s daily oil supply and a third of the world’s natural gas passing through it, meaning its closure has the potential to drive oil supply dramatically lower and prices dramatically higher. Whilst such a blow to the US economy might have appeal to Iranian leaders, the consequences could well prove fatal to the regime. In order to achieve a quick resolution/end to the ‘blockage’, the military response from the US would likely be swift and devasting. What is more, such a closure would frustrate all global consumers given the international nature of pricing, particularly irking the Chinese who are the major buyer of Iranian barrels. I do not wish to be provocative, but picking a fight with the US and upsetting China does not seem an obvious route to enduring success.

This saga (as well as US Trade Policy) is a useful reminder that whilst Geopolitics can play an important role in determining long-term asset allocations, in the short-term it can often be a bit of a misread; even representing a ‘counter signal’ during peak anxiety. This is a point made brilliantly in Invesco’s latest award-winning Time in the Market podcast, featuring famed Geopolitical Investment Strategist and author, Marko Papic.

Addressing the Eurosceptics – Tuesday 24th June

When analysing the most recent German strategic choices, we have plenty of sympathy for those who remain a ‘Doubting Thomas’. And though there’s a neat fit here with an unconvincing start for our new Teutonic England football manager, in this context we refer, of course, to German economic policy and the proposed unwind of fiscal parsimony.

As discussed in the prior quarterly addition of this publication, incoming German Chancellor, Friedrich Merz, is calling for a ‘whatever it takes’ moment. Such language, echoing a fearless 2012 Mario Draghi, was no accident, with Merz attempting to showcase a similar zeal in delivering an inflexion point for the European defence capability and economy.

Given Europe’s track record of glacial policy change, scepticism over the scale and pace of any defence and infrastructure spend remains widespread. This scepticism, however, only serves to elevate the opportunity, particularly as evidence emerges of just how committed the German government is to the plan. In late June, a cabinet approved budget would see Germany take on record levels of debt in a highly ambitious investment programme. The final vote comes in September, and is a ballot we shall be paying very close attention to.

The case for European equities was articulated exquisitely by Invesco fund manager, Oliver Collin, in the latest Invesco Equity Webinar, also featuring a Global and Asian Equity fund manager in a broader discussion on the opportunities within the global stock market.

Bank of England – Keep on Cutting: 8th May

The Bank of England cut interest rates by 0.25% in May, marking the fourth cut in this phase of the interest rate cycle, and maintaining a pace of approximately one cut per quarter. Beneath the surface, however, and an even more accommodative narrative is building, as the jobs market data get weaker and the voting distribution of the Monetary Policy Committee leans more ‘dovish’. On that basis, the market forecast for just 2 interest rate cuts between now and year end, and just 3 by this time next year, could be a little conservative, in our view. Of course, an accelerated pace of interest rate cuts may be in response to economic jeopardy, injecting a little unease into markets, however, given the interest rate sensitivity of our consumer (via short-dated mortgages), investors may soon sniff out at a recovery.

As we’ve learnt (and keep learning) however, the interest rates households and business pay, and the yields on which bonds trade, are not fully under the control of central bank governors, in fact they can have an inverse relationship at times. Parliamentarians also have their part to play. Budgets that lean too generous or show a material shortfall in funding, for example, can provoke an unwelcome response from the bond market. Whilst fiscal profligacy, therefore, does pose a risk to our more dovish narrative, bond market feedback can be a pretty powerful tool, eliciting a swift course correction (or even personnel correction!) if deemed necessary. On balance, whilst fiscal largesse appears a risk in the short-term, it is not an enduring threat to our call for more UK interest rate cuts than expected.

For more insight on UK economic and stock market prospects, please check out Invesco’s award-winning Time in the Market Podcast and an excellent recent episode starring Invesco UK Equity Fund Manager, Beth Shard.