Global stocks hit an all-time peak amid trade uncertainty
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Hello and welcome to World Business Report from the BBC World Service. I'm David Harper and coming up in just a moment we'll be asking why global markets are hitting record highs despite increasing uncertainty about the direction of the world's largest economy, the United States, and we'll also find out what effect some of President Trump's tariffs are likely to have in the US.

It certainly is going to have an indirect effect on the price of really any item that has a substantial steel or aluminum component, which is washing machines, you know, motor vehicles. And also as Bulgaria edges closer to joining the Eurozone, we'll find out why some Bulgarians aren't entirely sure if they want to.

Well, first of all, for the last few months on World Business Report, we've been talking almost constantly, it sometimes seems, about trade tariffs. Since President Trump returned to the White House, we've seen a series of announcements, some targeting specific countries, some targeting specific products and some targeting, well, pretty much everyone. The way in which these have been brought in, introduced, then raised, then lowered, then sometimes paused several times.

has brought further uncertainty with businesses the world over having to try to second guess if and how and indeed when tariffs will affect them. Set to this background, you would expect markets across the globe to be in a desperate situation, but they're not. In fact, globally, they've hit a record high. And in this edition, we'll try to find out why. Our man with his finger on the pulse is Russ Mould, investment director at AJ Bell, who joins us now.

Let me ask you, first of all, Russ, we're talking about them hitting a record high. Just what situation are global stock markets in? Well, at the moment, they're clearly, as you've discussed, wrestling with what trade and tariffs may eventually mean for not just the United States, but the world. They were terrified by what they saw on the 2nd of April from President Trump and his government in terms of the reciprocal tariffs, immediately priced in high

higher inflation, lower global growth and probably lower corporate profits. And there was that very sharp sell-off in early April. But they bottomed a week later in the view that the president will seek deals, may back off and actually the situation may not be as black or as disappointing as they first feared. So this is a lot of people factoring in a terrible situation and thinking, well, actually, this isn't as worse as we thought it would be.

That's a perfect explanation. Yes, stock markets will trade off what they believe. They are trying to anticipate future events and pricing accordingly. And they're not always right because they don't have a crystal ball. And at the moment, second guessing what's going to appear on the president's social media posts every week. And he seems to specialize it on a Friday night after the markets have closed.

It is extremely difficult. So they might get some things right, but they might get some things wrong and overreact. We've heard a lot of people talking about this whole taco idea standing for Trump always chickens out, a concept that wasn't terribly well received by the president himself at a press conference. Is there an element of that, though, that the people are just looking at this as the boy who cried wolf when people hear an announcement? They're thinking, oh, well, but it probably won't happen.

I think this is the risk. And the latest announcement of 50% tariffs on steel and aluminium, stock markets kind of just shrugged it off as if to say, oh, well, we've heard this before. We've seen the post before. He'll change his mind. So the danger, of course, is now we've had that huge rally since the lows on the 8th of April that come the 9th of July, these reciprocal tariffs are imposed because deals don't get

done and the global economy does slow down and prices do stay high so there are still some clear risks out there and if anything the best time to buy stock markets is when everybody's depressed because that's when prices are lowest not when everyone everybody's cheering and prices are at their highs obviously what we've heard from heard from the white house is a major influencing factor on the markets is it the only factor here are there other things that have have brought us to this peak at the moment

We clearly have to pay attention because America is the world's biggest economy, the world's biggest stock market, world's biggest bond market, home to the world's reserve currency. So America has huge influence. But there are other things going on. Markets are paying attention to what's going on in

the Middle East, in the Russia and Ukraine. And things like a falling oil price is actually seen as a good thing right now for global financial markets and the global economy. Higher oil prices mean higher fuel costs, higher energy bills. It lowers consumers' ability to spend and can be a tax on company profitability as well, so long as you don't sell oil.

So that, for example, is at the moment also a helpful trend. I'm sure President Trump will try and take some credit for that, for fostering better relations with Saudi Arabia and perhaps politely leaning on them for some help. Just to look at some of the sort of individual sectors and areas to this, where in particular is doing well, talking about sectors, but also about particular parts of the world?

I mean, defence stocks have been very much in vogue with investors over the past year or so, and we've seen the United Kingdom this week announce major spending plans on submarines, munitions and local factories. So a sector that many investors have shunned for many years, either because of the perceived peace dividend or on ethical and social and governance grounds, a sector that was out of favour has come roaring back into favour amid heightened geopolitical tensions.

You've also seen banks actually doing quite well because the global economy so far is doing, again, better than perhaps we feared back in April. And also you're just seeing some signs of life in miners of precious metals like gold and silver because those prices of those commodities are doing extremely well. Gold at nearly an all-time high, silver at a 13 or 14-year high.

Let's just have a look around the world at some of the areas. We'll be back with you in just a second, Russ, because we've said that old phrase so many times, when America sneezes, the world catches a cold. But despite some of these pressures we've been talking about being placed on some of the world's smaller markets by changeable United States trade policies, there appears to be...

attracting some strong investment at the moment. Let's talk to Mashal Khan from the Portfolio Management Department at Al-Fala Investments in Pakistan, who is with us live from Karachi now. Thank you very much for joining us. Let's talk about Pakistan for a moment, because there is some positive investment going on. What is going on in Pakistan? What is performing well? Assalamu alaikum and thank you so much for having me.

So essentially to understand what's going on in Pakistan, it's important to go back about a year and a half ago and see where the stock market rally began. So naturally, we all know that equities are sentiment based.

And so when you look from an outside perspective into a country stock market, it is difficult to notice the nitty gritties of the effect that maybe political movement has on capital markets. Right. But living here, I can give you

an overview as a civilian, as someone who works in the capital markets, that essentially there are certain governments that are more pro-economy and certain governments that are pro other areas. Pakistan, because we have a lot of different issues, we have different governments focusing on different aspects. When we had the initial change of government with the PMLN government coming in, our equity market, the Pakistan Stock Exchange, tends to be...

tends to react very well to PMLN because they are heavy on economic growth. So what ended up happening was that they came in, they did not move around the interest rates. Instead, what they did was come up with certain reforms and pass certain laws, bills that then allowed for your inflation to slowly, slowly decrease in the country. We were at 35% plus inflation when they initially came in. And then in March, we recorded 11%.

record low since the 1960s, which was 0.3% inflation, right? Which for Pakistan, averaging 10% inflation was a record low. So what ended up happening was that because of that investor confidence reinstilled, we started moving from a contractionary monetary policy toward an expansionary one. And your interest rates started coming

coming down till eventually they came down from 22% to now where they stand at 11%, losing like a whopping 1100 basis points on that, right? So because of that, people started taking their money out of the banks, putting it into the stock markets. Now, along with that, what ended up happening was that eventually when the trade wars began, right, back in Feb,

Pakistan's largest thing on the import bill, because our imports are larger than our exports, right, is fuel. So when crude oil falls in international markets, Pakistan is always in a position where we do better because of that.

because most of our sectors are energy heavy. We're seeing quite a few things come together, which is perhaps creating some favorable conditions. You talk about people in Pakistan investing, but there are people outside. Who is investing in Pakistan and why there rather than anywhere else? So essentially in the early 2000s, we saw especially a lot of foreign direct investment, but then we saw a lot of FDI leave Pakistan, especially when our economy

our currency started devaluing, right? Back in 2017, we entered a bear market. That's when FDI left. We are seeing increasing interest from international hedge funds. We have foreign investors, individuals. We have our overseas Pakistanis. We see a lot of remittances. We see a lot of investment coming through our Russian digital accounts in Pakistan.

And that has especially been growing since our rally began. And that is probably because, again, rounding back to the point where the current government is very pro-economy. Let me just come back to Russ for a moment, because what we're hearing from Pakistan is quite interesting. But there are a lot of other smaller economies, some emerging economies, which are attracting a lot of investment at the moment.

Yeah, we've got two interesting things. Again, whether they're down to purely President Trump or other matters is open to question, but we've already heard from Michelle that a weaker oil price is generally helpful for many emerging economies.

Generally speaking, a weaker dollar is seen as very helpful for many emerging economies. Again, there has been some degree of overseas investors wondering whether they really want to hold quite so many dollar assets given the unpredictability of government policy right now. Any country that has borrowed in dollars will now find it a little bit cheaper to service those debts. Lower interest payments means it's got more money to spend in infrastructure or

its own economy so little trends like that again do seem to be helping emerging markets right now and the emerging market global stock market index is up by around 10 percent over the last year and actually bottomed in 2022 after a long period in the cold because i mean historically people have been put off from some of these smaller economies because they say well it's quite unpredictable we don't know what will happen but i mean people are asking the same question about the united states so presumably people are thinking well why not

Yeah, and also emerging markets have not performed as well, so they're cheaper. And a lot of emerging markets, basically those in Asia, or even to a degree in some of the southern European economies, have been through their own debt crises in the late 1990s in Asia and in southern Europe in 2020.

the early 2010s. And in some cases, their balance sheets are now better than those of America. Less stretch, less debt, lessons learned. So again, if you are worried about how President Trump's tax bill may increase the American federal deficit even more, maybe some people will look at emerging markets as a safer place to be financially. Hard to believe as

as that may be. Ross Mould, Michelle Kahn, we will probably come back to this later, I think. In the meantime, let's look at a few other bits and pieces. You're with World Business Report from the BBC World Service. And as we mentioned, the steel and aluminium tariffs introduced by the White House earlier. Let's hear a bit more about what's been announced and how it's been received. Our reporter Hannah Bewley can explain the details for us.

President Trump signed an executive order on Tuesday which brought in an import tariff, or tax, of 50% on steel and aluminium into the US. He gave a speech at the Mon Valley Works Irvin plant, run by US Steel, outlining his plans. We're going to bring it from 25% to 50% the tariffs on steel into the United States of America, which will even further secure...

The steel industry in the United States, nobody's going to get around that. Since March, the US has charged a 25% tariff on steel and aluminium being bought by American firms from companies abroad. This is separate to the tariffs announced in April on President Trump's so-called Liberation Day, when he stood on the White House lawn with his game show style board of tariffs he was applying to all countries.

At the moment, the US imports roughly a quarter of the steel it needs, mostly from Canada and Mexico. Around half of all aluminium is imported, with the vast majority coming from Canada. With steel and aluminium crossing the border multiple times while a product is made. So why is it being tariffed? Well, the Trump administration says this is all about protecting US manufacturing.

Some, especially those in the steel industry, are supportive of the tariffs. Here's Philip Bell, president of the Washington, D.C.-based Steel Manufacturers Association, the largest steel industry association in North America. I believe that the signal that the president is trying to send is that our steel trading partners need to be very serious about their trading relationship with the United States.

It is not an entitlement to sell your imported steel here. It's a privilege. And I think that President Trump is sending a clear signal that you need to understand and appreciate that privilege. But the news isn't all good for US manufacturing companies. The Institute for Supply Management says that manufacturing there contracted for the third month in a row in May, with factories reducing staff numbers. And prices have already risen for products using steel and aluminium.

The process to produce these raw materials is extremely energy intensive, so high energy costs at the moment are impacting companies' ability to produce more. Plus, this has a wider effect, not just for the US. Matthew Shoemaker is the mayor of Canadian city Sault Ste. Marie. The city is on the north bank of the St. Mary's River with the identically named city of Sault Ste. Marie on the opposite bank in Michigan, USA. He says that it's the downstream companies which will be heavily impacted.

We have been in this situation before. And in 2018, when the Trump administration imposed 25% tariffs on Canadian steel and aluminum, it did create roughly 1,000 jobs in steel mills across the U.S., but it lost 75,000 jobs at other manufacturing industries across the U.S.,

However, one country does have an exemption. The UK. The rate remains at 25% for steel and aluminium coming from Britain to the US. The UK signed a trade deal with President Trump last month, but if that doesn't come into force on time in July, then the rate will be hiked to 50% for the UK too. Given the changing nature of the tariff environment, the rest of the world and US companies will be watching for the next twist. ♪

Hannah Bewley with that report, just bringing us up to date with what we have seen. Jason Miller is a supply chain professor at Michigan State University. And I asked him how wide ranging some of these implications have been. Easy rule of thumb is that there's about 80 jobs in downstream industries that use steel versus every job involved in making steel.

And so the big concern from an economic standpoint is while this will benefit the roughly 85,000 employees of the steel mills, it will negatively affect the over 6 million individuals in those downstream sectors that use steel.

by raising their costs and especially making their products less competitive on a global stage compared to, say, exporters in the UK or the EU. So for people in the United States who are buying steel as part of their manufacturing process, they're now facing the choice of domestically produced steel, which is more expensive, or imports which have these tariffs attached to them. How much does that balance hit them?

Well, so it'll depend by product. But the one big thing is that the domestic producers, their response to tariffs is always to raise their own prices. We saw this back in 2018, where prices steal in the United States spiked after the March 2018 announcement compared to, let's say, comparative prices in Europe.

And so essentially, for some products, you know, steel isn't that much of a factor. For other products, if let's say you're a canning company and you're importing something that's called tin plate that the U.S. does not manufacture enough of to meet our own needs, we import a lot from Canada and from the EU.

You're all of a sudden taking a look at a substantial increase in your cost structure, and your two options are either to make less margin when you sell your product and therefore do less capital investment in research and development, or you raise your prices to your customers who tend to pass that on to the final consumer so you have what we call cost push inflation working its way through the supply chain.

And that is going to have, in terms of normal American peoples, it's going to affect the jobs of the people working in that sector as people make efficiencies and also affect the price that people are paying.

Well, and this is where the challenge is. And there's even research from the 2018 and 2019 metal tariffs that while they created about 1,000 jobs making steel and aluminum, they cost 75,000 jobs in those downstream industries that use steel and aluminum.

because those goods are now less competitive on a global marketplace. And so as an example, we saw weakening U.S. exports in 2019 that have been linked to the metal tariffs.

And so the concern is we're already starting to see negative ramifications of this sort of suite of tariffs that have been put in place. We saw some essentially backening down in May with the 90-day China pause, but now we're entering June with a major ramp up again. And if you look at that tree where steel and steel products come into the country and then they're used by manufacturers that are used by other manufacturers and it feeds down to the consumer –

Is this going to basically affect the price of pretty much everything in the United States?

It certainly is going to have an indirect effect on the price of really any item that has a substantial steel or aluminum component, which is the vast majority of durable goods that we think about. So again, washing machines, motor vehicles being two just simple examples that come up, building materials that involve steel will certainly become more expensive, and the

In terms of the overall inflationary impact, this isn't that pronounced. This isn't something that moves the consumer price index to like 5% year-over-year inflation. Steel's not that important, and aluminum are not that important. But what it does is it's creating an additional pressure on inflation that makes the Federal Open Market Committee, the FOMC, the group within the Federal Reserve that sets interest rates,

it makes them say, wait a minute, we don't want to start lowering interest rates yet because we're worried that these tariffs are inflationary. And so what it does is it essentially creates sort of this pause on interest rates being cut, which makes financing of everything here in the United States more expensive. We've seen so much volatility here with tariffs introduced, tariffs increased or reduced, tariffs paused.

And we're dealing with people in these supply chains who are having to plan months, years in advance at how they obtain the raw materials they need. How much has this uncertainty over what the situation is going to be like in a few months' time, how much has this disrupted that process?

Well, it's not only disrupted it. What it's done from data we have from the Federal Reserve Bank of Atlanta is it's causing many companies to scale back their planned capital investment this year in the U.S. because firms don't know what is going to happen.

I can use an example from a manufacturer I talked to recently that imports, as an example, a lot of machinery that it needs from Europe and specifically Germany. That company told me that they're scaling back investment this year because they're worried that if they order machinery from Germany, which is about half a million dollars worth...

They're worried that by the time that machinery could be delivered, there could be a 20% tariff or even a 50% tariff. And so what we're going to see in so many sectors is this desire to essentially pause investment

Professor Jason Miller there from Michigan State University. Russ Mould from AJ Bell is still with us. That whole point of pausing investment, that sort of goes back to what we were saying before, is that if people aren't sure if this is for the long term, they're going to hold back and wait before they put their money there.

Yeah, it's terribly easy for me to talk about share prices and for investors to move share prices up and down, pricing in one thing or pricing in another scenario. But if you're trying to run a business and take long-term decisions on investment and hiring, you are in a very difficult position because, as we've seen, presidential policy has changed on a regular basis. So if in doubt, you will probably hold back. And there is a concern that we may see the American economy slow down in the second half of this year with a global knock-on effect.

even if there are some of these trade deals done. And just today, we've had a weak employment number coming out of the United States, certainly weaker than economists were expecting from the private firm ADP.

Russ, thank you very much for your thoughts on that. Let's move on from the United States and tariffs and all of that for a moment, because after several years spent shaping the economy in order to meet all the right criteria to join the euro, Bulgaria has been given the green light to take up the European Union's common currency. However, surveys suggest that about half of the country doesn't want to. And today, thousands of protesters took to the streets around the parliament building to make their feelings known.

Well, Professor Atantes Georgiev is the Dean of Economics, the Economics Department at Sofia University, and joins us from there now. Thank you very much for being with us on World Business Report. We've seen some protests against this. Why are a significant number of people in Bulgaria perhaps not so keen to join the euro?

Well, you know the situation in Europe now is quite complex, so there is always this fear of the unknown.

However, the expert community in Bulgaria, the political institutions, the businesses, there have been many research reports as well by the academic community on our side, show that the effects from joining the Euro, the positive effects outnumber greatly any associated risks that can be identified by the opponents of this process.

So having political protests, especially by parties who are building on populism agenda is something normal, unfortunately nowadays in Europe.

But again, the expert community, the business, the institutions, they're more than certain about the road ahead. How much of this is a political issue and how much is people taking a genuine individual decision that thinking, well, actually, I don't think being aligned to the EU is such a great thing?

Well, we have to take into account that Bulgaria is quite close to the war zone in Ukraine and there have been many reports showing how propaganda and fake news and misinformation is attacking all Europeans. Some of the protests are, let's say, inspired by such political parties and

conductors of such foreign influence. So joining the Euro or becoming even more integrated inside the European Union is something that is not quite approved, let's say, by the ones who want to maybe

take Bulgaria a little bit further from the European partners. I mentioned that a survey suggesting half the country doesn't want to, that of course assumes that the other half do. And of course, this has been something that's always been baked into the plan since Bulgaria's membership of the EU. This has been a definitive and required point to work towards to join the euro.

Yes, some of the latest concerns when mentioning about opponents, some of the latest concerns have been about the date for joining the Euro. So the date 1st of January 2026 has been in discussion, even the president of the country himself has been putting this question to the parliament. However, I think that one of the main issues related to the

opponents of the EURO is that there has not been enough information campaign, a public information campaign about what will happen after the adoption is a fact. So again, the uncertainty, the lack of enough information is something that frightens people.

And this should be overcome in the coming months. The government has been planning to start a real information campaign only after a positive report has been received. So from tomorrow, we will expect the government to be quite more informative to the European citizens. Professor Gheorgheyev, thank you very much for joining us here on World Business Report today.