Market Update – 11th June 2025.

Global equity markets have had a quiet start to the week as investors await a key U.S. inflation reading due later today. Despite ongoing geopolitical concerns and soft data from China, market volatility remains low and investor sentiment broadly steady.

The main headline earlier this week was renewed dialogue between the U.S. and China, with trade officials meeting in London to ease tensions. While details remain limited, early reports suggest progress on several trade issues, including the supply of rare earth materials. This followed a U.S. appeals court decision allowing existing global tariffs introduced by President Donald Trump to remain in place for now. The market reaction has been muted. Given the ongoing back-and-forth on trade policy in recent months, investors appear to be waiting for more concrete developments before adjusting their outlook.

Chinese data released this week painted a subdued picture. Consumer prices fell for a fourth consecutive month, producer prices also declined, and export growth slowed—highlighting ongoing challenges in both global demand and domestic activity. The weakness likely reflects the impact of U.S. tariffs introduced. However, if trade talks progress positively, the data could improve quickly. The latest figures also reinforce expectations of further stimulus from policymakers.

Closer to home, UK stocks remained fairly muted as investors absorbed signs of a gradual weakening in the labour market. The unemployment rate edged up to 4.6% in the three months to April, from 4.5% in the previous period, in line with market expectations. This marks the highest level since mid-2021 and reflects a moderation in wage growth, likely linked to recent policy changes and rising employment costs. In April, employers faced an increase in National Insurance Contributions alongside a 6.7% rise in the national minimum wage. As anticipated, these cost pressures appear to be prompting businesses to reassess hiring plans—slowing recruitment activity and, in some cases, reducing headcount to manage margins more carefully.

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Wage growth also moderated during the period. Total average weekly earnings, excluding bonuses, increased by 5.2%—down from 5.6% previously. While pay growth remains robust compared to historical levels, it is showing early signs of easing. Public sector wages are now rising slightly faster than those in the private sector, indicating a shift in pay dynamics across different parts of the economy.

The softening in employment and earnings data, alongside easing inflation, could prompt the Bank of England to adopt a more dovish stance. If these trends continue, interest rate cuts this year become more likely, supporting borrowing, consumer spending, and corporate margins—all of which tend to be positive for financial markets.

Chancellor Rachel Reeves is expected to outline the government’s latest spending review later today, including a focus on infrastructure investment over the coming years. The NHS and defence are expected to receive the largest boosts. Markets will be looking for details on how new spending will be managed alongside a commitment to fiscal discipline, ensuring a sustainable approach amid current economic challenges.

All eyes now turn to the May U.S. Consumer Price Index (CPI) release due today. Economists expect a slight uptick in the headline inflation rate to 2.5%, reflecting early impacts of the new tariffs. The Federal Reserve has held rates steady in recent months, and any signs that inflation is proving persistent could delay the timeline for potential rate cuts.

Later this week, market attention will also focus on UK GDP and industrial production data, the Eurozone balance of trade, U.S. initial jobless claims, and University of Michigan consumer sentiment.

Kate Mimnagh, Portfolio Economist