Is the tariff war over? Markets seem to think so, for now

In the last week or so stock markets have continued to rally after the announcement of a 90-day suspension of the punitive tariffs between the US and China to levels of 30% and 10% respectively begging the question, is the tariff war over, or merely deferred?

The UK and the US have signed off a modest deal which cushions the UK from a lot of the tariff fallout, but the fact remains tariffs on UK exports to the US are still higher than they were at the start of the year with Joseph Stiglitz stating that the deal isn’t worth the paper it is written on.

We can debate as much as we like as to whether Stiglitz is right, but the market appears to have made up its mind with the DAX resuming its pattern of setting new record highs, while the FTSE100 has managed to consolidate its position above the 8,400 level and its 200-day MA.

It’s notable that the best gainers year to date are the likes of Babcock’s, BAE Systems and Rolls- Royce, all companies that do a significant amount of business in the US. 

US markets are also holding up well and have managed to recover back above their 200-day MA’s, with the exception of the Dow and Russell 2000.  

Company results have continued by and large to paint a relatively upbeat picture despite the pessimistic outlook while yields have started to edge higher again, with little in the way of surprises central bank wise. 

The Federal Reserve kept its key rate unchanged, while the Bank of England shaved another 25bps of its base rate to 4.25%.  

That said the effect on yields has been the opposite of what was intended with another split decision in the UK.  

7 policymakers called for a cut, while 2 voted for unchanged.

Of the 7 who voted for a rate cut, 2 of those wanted a bigger 50bps reduction, namely Swathi Dhingra (no surprise there) and Alan Taylor.  

The 2 holds were Catherine Mann and Huw Pill, with Mann’s attempts to justify her decision to hold rates merely serving to create more confusion with her comments about a resilient labour market at odds with the central bank’s own regional surveys.   

While it would be easy to characterise these splits as the MPC having little clear idea of how the UK economy is doing, and many people are doing so, I also think that having such divergences is preferable to the past where groupthink became the norm, and which has served to create some of the problems we are seeing today.  

With so many uncertainties in the world it would be hard for any central bank to set policy, but at least the Bank of England are having serious wider discussions about the pros and cons of each decision. That doesn’t mean you have to agree with their decision on rates but at least we are seeing discussions around the policy prescription. 

This week we got some good news on the UK economy with the latest data from the ONS showing that the economy grew by 0.7% in Q1, which was much better than forecast, and by 0.2% in March.   

Rather predictably, this has been greeted by the government as vindication of its economic policies since it took power. While that line may fly on a purely cosmetic level, let's dig a little deeper, shall we? 

Much of the improvement appears to have been driven by business investment and exports, both of which are likely to slow significantly in Q2.  

Services was the biggest contributor, increasing 0.7% with consumer facing services seeing an increase of 0.9%, not unsurprising if recent retail sales data is any guide. Repair of cars and motor bikes did well, along with support service activities. Transportation and storage also had a strong quarter.  

Production and construction also had strong quarters despite performing badly in March, with transport equipment seeing a big lift.  

Export volumes rose strongly, rising 3.5%, following on from 3 successive quarterly declines, as UK manufacturers rushed to beat Trump’s April tariff deadline with goods exports rising 5.6%, with exports to the US rising sharply. This mirrors what we saw in the US Q1 GDP numbers where we saw an economic contraction due to a surge in imports.   

This is likely to slow in Q2 even with the recently announced trade deal with the US as baseline tariffs will still be higher than they were in March. 

So, while the government will be quick to claim the credit for a decent set of numbers for Q1, it’s doubtful they’ll be as quick out of the traps in 3-6 months’ time when the economy is likely to be in a very different place. I think they will prefer to blame external factors.  

Main results and broad overview

On the company earnings front we’ve seen a broadly positive picture with not much in the way of pessimism, although we have come across plenty of caution.

Apple’s Q2 results saw the tech giant post revenue of $95.4bn an increase of 5%, and profits of $1.85c a share, or $24.78bn an increase of 8%

The breakdown was as follows – iPhone revenue came in at $46.84bn, Mac revenue of $7.95bn, iPad revenue of $6.4bn and wearables of $7.5bn.  

Services continued to grow sharply as a share of income rising from $23.87bn to $26.64bn, an increase of over 11%.  

The main weak spot was wearables which saw revenues decline from $7.9bn a year ago. 

On sales the Greater China region saw a decline in sales of $370m to $16bn, whereas all other regions saw sales increase. Given the ongoing trade uncertainty between the US and China a slowdown in sales shouldn’t be viewed as too much of a surprise.  

On the topic of these tensions CEO Tim Cook said uncertainty around tariffs was likely to increase costs for Apple by $900m in the current quarter, while beyond that the outlook is even less clear.  

The move by Apple to migrate iPhone production away to India will help mitigate some of that but not all as it moves production to lower tariff countries like Vietnam.  

For Q3 Apple said it expects to see revenue growth of low to mid-single digits from the $85.78bn it saw last year on a gross margin of 46%. Apple also increased its dividend by 4% to 26c a share.   

Having seen strong numbers from Microsoft and Google owner Alphabet, the pressure was on for Amazon to deliver as well, especially when it comes to growth in cloud services.  

Ultimately as far as Q1 was concerned the company delivered with total revenues of $155.7bn, compared to $143.3bn a year ago, and profits of $1.59 a share, an almost 70% increase on Q1 last year.

Amazon Web Services saw revenues increase by 17% to $29.3bn.  

Earlier in the month Amazon managed to upset “the Donald” after reports emerged it planned to show shoppers how much extra tariffs were adding to prices, a report which was quickly denied.

On a personal level that seems like an excellent idea especially here in the UK, where it could be applied to taxes on fuel and energy products where it would showcase how much taxes and levies from the government have added to the cost-of-living crisis.   

Q2 guidance was a little on the light side largely due to concerns over how much tariffs would erode its margins particularly on the retail business. 

Net sales are expected to be between $159bn and $164bn, with operating income expected to be lower than consensus at between $13bn and $17.5bn. Consensus was $17.5bn.  

Last week Next PLC managed to deliver once again when it came to its profit guidance with another upgrade, although on net sales the retailer was more cautious despite a bumper set of Q1 numbers which showed an 11.4% increase in full price sales, £55m ahead of forecasts.  

Next management said they believed that this was due to warmer spring weather bringing forward consumer purchases of summer wear. Due to this perceived pull forward, Q2 sales guidance was kept unchanged at 6.5%, however profits guidance was raised to £1.08bn an increase of £14m. 

Sales guidance for H2 is expected to be weaker at 3.5%, with most of the growth expected to come in H1.  

Next full price annual sales are expected to rise by 6% to £5.4bn and total group sales of £6.6bn an increase of 5%. 

A decent set of Q1 numbers from British Airways owner IAG as revenues rose 9.6% to €7.04bn as increased capacity as well as higher ticket prices and lower fuel costs helped boost its margins.   

Operating margin rose to 2.8%, helping to push operating profits up sharply to €198m, well above expectations of €133m. 

Full year guidance was kept unchanged.   

IAG also said it was ordering 53 new aircraft as it looks to modernise its fleet with 32 new 787-10 Dreamliners from Boeing at $397m a piece, and 21 Airbus A330-900NEO’s at $374m a piece, subject to shareholder approval in June.  

These orders have options to purchase an additional 10 787s, and 13 Airbus 330s, with the Airbus aircraft set to be powered by Rolls-Royce engines.   

Despite this improvement full year guidance was kept unchanged, with bookings for Q2 at 80% of capacity, with demand to North America robust.   

After a set of Q3 numbers from pub chain J D Wetherspoon the shares rose sharply after Q3 like-for-like sales rose 5.6% and, on a year-to-date basis, 5.1%. 

On the outlook chairman Tim Martin was upbeat saying that the company continued to invest in improving its pubs. They also said they planned to open 4-5 new pubs this year and another 10 in the next financial year.  

Disney’s Q2 numbers saw the shares rise sharply after beating forecasts for the quarter. Revenues increased 7% to $23.6bn, while net income rose to $3.1bn, a sharp rise from the $0.7bn seen a year ago. 

The parks and cruises division helped in this regard, with sales rising 6%, to $8.9bn, driven mainly by domestic parks, while the Disney+ streaming business also saw a pickup in subscriber numbers to 126m, an increase of 1.4m, and beating the rather downbeat forecast that predicted a fall.  

Average monthly revenue per user also saw an improvement of 3% to $7.77 a user with the international market seeing the biggest improvement of 5% to an average of $7.52 a user. 

On guidance for Q3 management said that they expected a modest pick-up in subscribers for Disney+ in Q3.  

For the full year a 16% increase in full year profits. 

Also saw mixed sets of numbers for both Uber and DoorDash both of who saw their shares fall in the aftermath of their Q1 results. While revenues came in light, profits were ahead of forecasts. 

DoorDash saw revenues come in lower than forecasts of $3bn even as profits of 44c beat forecasts. On guidance the company was cautious despite it splashing out on 2 new acquisitions, the $3.86bn it is spending on Deliveroo and the $1.2bn for SevenRooms which is a New York based tech company along the lines of OpenTable.  

It was a similar story for Uber, falling short on revenues and beating on profits. Q1 revenues of $11.53bn fell short, as profits came in well ahead of forecasts at 83c a share, or $1.83bn compared to a $654m loss a year ago. 

On all other measures Uber showed decent growth in services and mobility with an almost even split when it comes to revenues for both.   

On guidance Gross Bookings are expected to come in between $45.75bn and $47.25bn.  

This week  

Burberry Group FY25 – despite slumping to a full year operating loss of £3m, Burberry shares have shot higher after the retailer outlined a plan to cut 20% of its staff in response to a sharp decline in sales and revenue of 15%. Total revenue in 2025 fell to £2.46bn from almost £3bn the previous year.

Same store sales across all the regions also saw steep falls with Asia Pacific seeing a 16% decline over the year, while the Americas saw a 9% decline. In November last year, in response to a disappointing H1, new CEO Joshua Schulmann launched “Burberry Forward” a turnaround plan designed to improve the performance of a brand that has faced its fair share of struggles in the last couple of years and that has seen the share price fall sharply from its 2023 peaks of 2,608p, falling to as low as 557p in September last year.

Could it become a bid target given how far the share price has fallen, it certainly wouldn’t be the first luxury brand to see interested parties take advantage of a low valuation. We only have to look at Hugo Boss, and how Sports Direct has upped its stake last year. Could Burberry attract similar interest?

Although we’ve seen a modest recovery since the September lows, the shares are still below the levels we saw in February this year of 1,254p, halving to 600p at the start of last month on back of the so-called “Liberation Day” tariff announcements. 

Will the plan announced this week be enough to stop the rot in a sector that has had a troubled couple of years, although it is notable that the declines in the Burberry share price have been much more extreme than we’ve seen from the likes of LVMH, Hermes and other so-called luxury brands, although Hugo Boss has had its fair share of struggles.  

For 2026 Burberry was cautious, saying that it was early days in the turnaround plan and that delivering the changes would unlock £60m of savings by 2027, in addition to the £40m already announced.

Associated one-off costs of these savings are expected to be £80m, £29m of which has already been absorbed in this week’s 2025 full year numbers.  

ITV Q1 25 – 15/05 – when ITV reported its full year numbers in March the company reported a 3% decline in full year revenue, with ITV Studios contributing to a 6% decline to £2.04bn, although that was mainly down to the US writers strikes. Fortunately, this didn’t come at the expense of pre-tax profits for the group, which rose 19% to £472m and an improvement in margins to 14.7%. ITVX helped to drive that improvement with a 15% rise in digital advertising revenue.

In this week’s Q1 update ITVX once again helped drive another 15% improvement in digital advertising revenue, although this wasn’t enough to prevent a 3% decline in overall media and entertainment revenue to £489m.

On guidance for M&E ITV says it expects further weakness in this area with a 14% decline expected in Q2, and an 8% decline for the whole of H1. This is set against the comparatives last year of the Men’s Euro 2024 which helped deliver a boost. ITV said it remains on track to deliver £750m of digital revenues by 2026.  

ITV Studios guidance was left unchanged, with slightly lower margins for 2025, but still within the 13% to 15% range.   

Total group revenue was up 4% at £756m, with ITV Studios contributing a 1% improvement to £386m delivering programs for Amazon Prime, Netflix and the BBC 

Walmart Q1 26 15/05 

As a bellwether of the US consumer, you can’t get much bigger than Amazon and Walmart. Amazon posted a solid set of numbers, and so has Walmart with a 2.5% increase in Q1 revenue to $165.6bn and EPS profits of 61c a share. US comparable sales increased by 4.5% to $112.2bn, while global ecommerce sales rose 22%.   

For Q2 Walmart said it expects to see net sales increase by 3.5% to 4.5% from Q2 25, however they declined to offer estimates for operating income growth and EPS.