Written by Andrew Gillham Head of Fixed Income, TEAM Plc

The stock market rally came to an abrupt halt at the end of the last week after Donald Trump, frustrated by a lack of progress on trade talks, threatened to impose a straight 50% tariff on imports from the European Union in a post on Truth Social on Friday morning.  The US President also warned Apple that he would impose at least a 25% import tax on all iPhones not manufactured in America.

Shares in the smartphone manufacturer fell more than 3% on the day, extending their losses for the week to 8%. The blue-chip S&P 500 and technology focussed Nasdaq indices fell 2.7% and 2.5% respectively over the week.

Not for the first time, the US President stepped back from his threatened tariffs following a “very nice” phone call with European Commission President Ursula von der Leyen on Sunday.  The White House administration is seeking to close a $230 billion trade deficit with the EU and the two leaders agreed to push back the deadline for reaching an agreement to July 9.  

Rising government bond yields also weighed on investor sentiment last week. On Wednesday, the US sold $16 billion of 20-year US Treasury bonds at 5%, the highest interest rate for 20-year bonds at auction since 2020. Primary dealers also absorbed the 16.9% of the offering which were not taken up by other investors.

The weak auction reflects investor concerns over the country’s spiralling debt burden which is back in the spotlight at a time the White House is seeking to push the “One Big Beautiful Bill Act” through Congress which will make permanent the individual income and estate tax cuts passed in Trump’s first term in 2017. It will also make good on promises he made during the election campaign not to tax tips or overtime.

The Congressional Budget Office forecasts that the tax cuts will add $3.8 trillion to America’s debt over the next decade, in line with the rating agency Moody’s which cut the country’s AAA credit rating earlier this month. The Republican controlled House of Representatives voted 215-214 to pass the bill on Thursday, sending it on to the Senate for approval.

In company news, shares in EasyJet fell 3% on Thursday after it reported a £394 million loss over the October – March winter period, despite carrying 39.5 million passengers, 8% more than a year earlier, on its 350 aircraft.  This year’s late Easter added to the more challenging winter period for all European airlines.

The low-cost airline’s chief executive Kenton Jarvis also warned that deliveries of new aircraft from Airbus will be delayed but reiterated earlier guidance that it remains on track to generate a record full-year annual profits of £700 million due to strong demand for its flights and holidays over the peak summer season. EasyJet has sold around 80% of its seas for the current quarter

Apple’s lagging performance during the week was not just down to the threat of tariffs. The iPhone manufacturer was also hit by OpenAI’s agreement to acquire former Apple design chief Sir Jony Ive’s artificial intelligence device startup io for $6.4 billion.

Announcing the deal, OpenAI CEO Sam Altman called Ive “the greatest designer in the world” and he will be tasked to lead the creation of a family of products for the artificial general intelligence era, or to “completely re-imagine what it means to use a computer”.  Earlier this month, Apple’s head of services told a US court that “you may not need an iPhone 10 years from now, as crazy as it sounds”.

In economic news, annual consumer price inflation in the UK accelerated in April to 3.5%, a 15-month high. The increase was driven by higher utility bills, airfares and road taxes. Services inflation jumped to 5.4% from 4.7% a month earlier. The elevated readings will be a concern for policymakers and the Bank of England and money markets are now pricing in just one or two more quarter of a percentage points interest rate cuts during the remainder of the year.

In commodities markets, the trade tensions and concerns of government borrowing increased the attraction of safe-haven precious metals and gold and silver gained 3.5% on the week. In contrast, fell back to $64 a barrel following reports that the OPEC+ cartel is considering a bigger than expected increase in production from July.