Thursday 07/08/25

Donald Trump’s new tariff regime set to deepen global trade war (Financial Times, Aime Williams) reminds us that today’s the day that all the reciprocal tariffs come in. They will be taking effect from 12.01am in Washington and will raise US import duties to their highest level in a century. There were some last-minute attempts to escape the worst of the tariffs but Switzerland and Taiwan failed to get any concessions. Donald Trump hits India with extra 25% tariff for Russia oil purchases (Financial Times, James Politi, John Reed, Andres Schipani, Anastasia Stognei and Chris Cook) highlights a new headache for India as the US decided to punish it for buying Russian oil – be that directly or indirectly – and Donald Trump threatens 100% tariff on chips with carve-out for Apple (Financial Times, Michael Acton, Tim Bradshaw, Aime Williams, James Politi and Demetri Sevastopulo) shows that Trump is getting serious about his assault on semiconductors although Apple managed to get a vital exemption from this. Apple’s Tim Cook said that he would increase spending on US investments in the coming years by a whopping $100bn. The carve-out for those with manufacturing in the US will be a source of huge relief for companies including Nvidia and TSMC who have both promised massive investments in US production capacity. Meanwhile, Shares in European drug companies hit four-month low as Trump tariffs loom (The Guardian, Joanna Partridge and Julia Kollewe) shines the spotlight on pharmaceuticals companies who are facing renewed threats from Trump to commence a phased introduction of tariffs “within the next week or so”. Investors have become increasingly nervous about the sector and now it seems that the recent threats are turning into an actual phasing in of tariffs that will rise from a “small” initial tariff that will climb to 150% and then 250% within the space of 12 to 18 months.

Trump’s redneck recession hits his working-class base the hardest (Daily Telegraph, Melissa Lawford) takes a look at what the president has achieved so far and what the effects have been. He bills America as “the hottest country anywhere in the world” and you can indeed point to the success of its tech industry (Nvidia recently hit a $4tn valuation, which is more than a year’s worth of GDP in Germany), its banks – and therefore its S&P 500 and NASDAQ indexes. * SO WHAT? * That being said, Silicon Valley and Wall Street boom aside, employment is slowing down, the housing market is going sideways, small businesses are having a nightmare and consumer confidence is taking a beating. Many observers say that the ones that will be hit worst will be his working class MAGA support base because manufacturing, transportation, distribution and wholesaling are all in recession, retail is close to it and construction is in deep recession. Although Trump maintains that manufacturing will get a major boost by reshoring and producing more domestically, factories still have to rely heavily on imported materials like steel and aluminium – and they’ve just been slapped with 50% import taxes. I said recently that the lowest wage earners have seen wage growth of 3.7% versus higher earners who’ve enjoyed wage growth of 4.7%. Small businesses are having a particularly hard time because they don’t have the cash reserves that bigger companies do to absorb all the extra costs. Also, although the S&P and NASDAQ are doing well overall, over half of the S&P companies that have reported quarterly results have said that they are seeing narrowing profit margins as the tariff effect is kicking in.

Back home, Thousands of company directors leave UK after Labour’s tax changes (Financial Times, Ashley Armstrong, Eade Hemingway, Oliver Hawkins and Chris Cook) observes that there’s been a significant uptick in top company execs leaving the UK as 3,790 company directors reported leaving between October’s Budget and last month versus 2,712 in the same period a year earlier. This analysis was carried out by the FT (not New World Wealth, which has faced a lot of criticism for its potentially questionable figures on millionaire movements!) and used Companies House filings. It is said that the rich are leaving because of a combination of the ending of the non-dom status, restricting inheritance tax relief on businesses, increasing capital gains tax and raising duties on private equities bosses brought in by the government. * SO WHAT? * It sounds like it’s very difficult to get a feel for the true picture as even the FT is only seeing data on directors who have still kept at least one UK directorship while registering a change in their country of residence. It’s also not clear what their tax domicile is. Some of the exodus will be down to foreign nationals going back home but the number of UK nationals leaving has also increased significantly. At the moment, British directors seem to be gravitating towards the UAE (particularly for directors of SMEs), Spain and the US although Italy is also becoming a favoured destination. The argument is that the UK is losing wealth creators but I guess we’ll just have to see how this pans out over time because there may well be people who come here over time to offset the leavers.

Back in the UK, Inner London boroughs will lose from English council funding reforms (Financial Times, Delphine Strauss) highlights the increasing likelihood that inner London boroughs are going to lose out from incoming reforms of local government finances. Research by the IFS says that 25% of councils will be hit by funding cuts in real terms over the next three years from new rules that aim to make the allocation of central government grants more transparent. It suggests that the reforms are going to create big winners (mainly in the midlands and north) and losers (many of them in London, the south east and south west). * SO WHAT? * Given the well-publicised precarious nature of council funding over the last few years in particular, you would have thought that this will lead to more asset sales as well as a likely loss of services and jobs. On the plus side, at least councils will (in theory) get a better idea of what they are working with.

Then in UK construction activity in July falls at steepest rate since Covid (The Guardian, Richard Partington) we see that things aren’t going well for meeting government targets of building 1.5m new homes. Data from S&P Global Market Intelligence shows that construction sector activity dropped last month at the steepest rate since the height of the Covid pandemic! The findings are based on a survey of around 150 construction companies and the report suggests that the slowdown is due to labour shortages and other macroeconomic headwinds both domestically and abroad. * SO WHAT? * Construction companies appear to be digging in for a tough time ahead as well so it looks unlikely that construction is going to stage a turnaround any time soon. 

How to reason with OpenAI’s spiralling valuation (Financial Times, Lex) is an interesting article that tries to explain why OpenAI’s valuation is so high and whether we’re about to see it come crashing down any time soon. At the moment, it’s pushing for a $500bn valuation, but none of this makes sense according to traditional valuation metrics. * SO WHAT? * Unlike Amazon and Apple, OpenAI’s offering is less tangible but its growth rate is astounding. One way to value it would be to skim off value from other tech companies that OpenAI could crack into – like Google’s search, Microsoft’s software and Apple’s smart devices. Alternatively, it could be afforded a high valuation because it is one of those rare companies that is truly world-changing. Sometimes companies just defy fundamentals! That being said, we got a glimpse of weakness earlier this year when DeepSeek unveiled its cheap and cheerful – but highly capable – LLM. That is a danger that won’t go away…

Then in OpenAI-backed Chai raises $70mn for AI-driven drug discovery (Financial Times, George Hammond) we see that Chai Discovery, the OpenAI-backed start-up, has managed to raise $70m in a new funding round that values it at around $550m. Chai is a drug-discovery start-up and will be taking on more established rivals like Google DeepMind’s AI unit Isomorphic. Chia’s newest model, Chai-2, generates novel designs for antibodies that target specific disease-causing proteins and its hit rate is much better than when traditional methods are used. We are

living in exciting times where new drugs will potentially be developed much more rapidly than they were in the past!

Elsewhere, Brookfield steps up bet on AI mania (Financial Times, Julie Steinberg) highlights the asset management firm’s intention to increase its bets on AI by executing a strategy that will involve the development of data centres, chip storage and other AI-related infrastructure. I guess this is akin to the success of those selling shovels and picks in the gold rush where Brookfield doesn’t invest in the AI itself, but the backbone that it runs on. The CEO of Brookfield Asset Management said that “We believe AI infrastructure is one of the defining investment themes of the decade”. I would be inclined to agree with him!

In leisure news, Disney profits eclipse forecast despite consumer slowdown worries (Financial Times, Anna Nicolaou) shows that the entertainment giant easily beat market expectations in the quarter thanks to strong performances by its US theme parks. On the flipside, its traditional TV networks – such as ABC, Freeform and Disney Channel – have seen revenue declines due to the “ongoing shift from linear television to the direct-to-consumer side”. Streaming’s performance was good, though, and the company was confident enough to raise its full-year outlook on profits.

In retail news, Claire’s files for US bankruptcy for second time in seven years (The Guardian, Sarah Butler) shows that the tween jewellery and ear-piercing retailer has declared bankruptcy in the US for the second time in just seven years thanks to the slowdown in consumer spending and more people shopping online. The US retailer has over 2,700 outlets in 17 countries. Claire’s has at least 280 stores and employs over 1,600 staff in the UK, but they recently appointed advisers to give them guidance on options for its future. It sounds to me like there’s no coming back here…

Meanwhile, Morrisons revenues drop by £1bn amid supermarket price war (Daily Telegraph, Hannah Boland) highlights trouble at the supermarket as it reported its lowest annual revenues since it was taken over by a PE firm in 2021 as it continues to lose out in the current supermarket price war. Morrisons is in the UK’s “Big Four” supermarkets group but it’s on the cusp of being overtaken by Lidl. * SO WHAT? * I’d say that Morrisons is suffering from similar problems to Asda in that it’s been sliding into a morass of mediocrity for years as it has been crowded out, slowly but surely, by the German discounters. Given that supermarkets pretty much sell the same stuff, it is becoming more important than ever to stand out from the herd. Asda is also in this position but I think that it is finally taking action on this front and recently announced a plan for a revamp.

In leisure news, Airbnb warns of ‘tough’ months ahead even as it beats estimates (Financial Times, Stephen Morris) highlights better-than-expected Q2 results but sounded a downbeat

note about the outlook, which sent its share price 6.5% down in after-hours trading. Airbnb is worried about the effect of new tariffs and it is has already committed to investing $200m in new services and experiences. * SO WHAT? * I would have thought that Airbnb will get through this tricky period as consumers still want to go away – and I think that it’s fair to say that Airbnb is seen as a cheaper option, certainly versus hotels. OK so the new services are going to cost, but that may just incentivise people to use them more.

In restaurant news, McDonald’s Sales Rebound After Burger Giant Hammers Value Message (Wall Street Journal, Heather Haddon) shows that McDonald’s is bouncing back as same-store sales for the quarter exceeded market estimates. This will be welcome respite from the disappointing previous four quarters but the CEO is very aware of the fact that lower-income customer numbers have been falling sharply as their finances have tightened. Mind you, he also noticed that while lower-income customers are visiting less, middle-income customers are visiting more. * SO WHAT? * I guess that this supports the view that Trump’s America is rapidly developing into a country with haves and have-nots. I really think that if/when things look like they’re going to get really bad that Trump is going to whip out the cheques that have been “paid for” by all the tariffs to get the lower-income people back onside. I wonder how long he’ll be able to hold on for this?!?

In a quick scoot around some of today’s other interesting stories, Uber shrugs off investor worries about robotaxis as revenues soar (The Times, Robert Lea) highlights a major jump in operating profits but investors were more worried about the company’s insistence on pouring a lot of money into robotaxis. It’s unclear as to how long it’s going to take for the benefits to really show themselves…

Staying with cars, Honda’s quarterly profits are halved as Trump’s tariffs bite (The Guardian, Jasper Jolly) reflects a 50% drop in quarterly profits courtesy of Trump’s tariffs and EV policies. The impact wasn’t quite as bad as it had expected because it was able to raise prices in the US. Still, things aren’t looking good…

In Sales of Novo Nordisk’s diabetes drugs including Ozempic slow sharply (The Guardian, Julia Kollewe) we see that sales of the company’s diabetes drugs, including Ozempic, have slowed down very sharply as it continues to lose market share to Eli Lilley’s Mounjaro, which has better efficacy, and to cheaper versions made by generic drugmakers. This company needs to discover new blockbusters – and fast!

In financials news, L&G profits buoyed by UK’s booming pension buyout market (Financial Times, Lee Harris) highlights a decent performance by the insurer for the first half thanks to its strong position in the UK’s pension risk transfer market where companies pay the likes of L&G to take on their financial obligations. Then in TSB brand to change hands as sale to Santander approved (The Times, Helen Cahill) we see that shareholders of the current Spanish owner of TSB have now approved the sales of TSB to Banco Santander, which owns Santander UK. I suspect there will be a lot of branch closures and headcount reduction to come as there’s probably quite a lot of overlap…

Then in Miner Glencore decides against moving stock market listing from London to US (The Guardian, Jasper Jolly) we see a rare move – that the FTSE100 miner has decided to keep its London listing and not move to the US after having conducted a formal review. The London Stock Exchange will be relieved!

This is a very cute video showing you how a house is made! Loving the mini wheelbarrow…