Weekly Market Outlook

Dear Valued Traders,

As we approach the third week of May, I'm excited to share my insights on what promises to be another fascinating week in the markets. The landscape has shifted dramatically over the past fortnight, with significant political and economic developments that will undoubtedly shape our trading strategies moving forward.

Political Landscape: The US-UK Trade Deal

The biggest headline grabber this past week has undoubtedly been the "breakthrough" trade deal between the US and UK announced on May 8th. Having analysed the details closely, I can tell you this agreement marks a significant milestone in post-Brexit UK-US relations, though it's not without complexities.

President Trump and Prime Minister Starmer have both hailed this as a historic achievement. While it certainly provides some relief for key UK industries, we need to look beyond the political rhetoric to understand its true market implications.

The deal reduces tariffs on British cars to 10% (down from the punitive 27.5% Trump had initially announced), which is particularly beneficial for luxury manufacturers like Jaguar Land Rover, Aston Martin, and Rolls-Royce. We've already seen their share prices respond positively, with more potential upside as the market fully digests these developments.

Additionally, the agreement cuts tariffs on British steel and aluminium exports to zero, providing a lifeline to the UK steel industry, which has been teetering on the edge of collapse. However, it's worth noting that a 10% baseline tariff remains on most goods, and I'll be watching this closely as negotiations continue.

The pharmaceutical sector also received "preferential treatment," although the specifics remain vague. This ambiguity creates risk and opportunity for traders in this sector, which I'll address in my trading strategies below.

Economic Context: Central Bank Divergence

We see an interesting divergence between the UK and US approaches to monetary policy. On May 7th, the Bank of England cut interest rates to 4.25%, with a split vote of 5-4 (two members preferred a cut to 4% and two preferred no change). This decision reflects the BoE's assessment that there has been "substantial progress on disinflation over the past two years," allowing them to withdraw some degree of policy restraint gradually.

However, the BoE's latest Monetary Policy Report indicates that UK inflation is expected to rise to 3.5% in Q3 2025 before easing, which suggests we're not out of the woods yet. UK GDP growth has also slowed since mid-2024, and the labour market continues to loosen factors that will influence market sentiment in the coming weeks.

Meanwhile, across the Atlantic, the Federal Reserve held rates steady at its May meeting, taking a "wait-and-see" approach to future cuts. This policy divergence between the BoE and the Fed creates interesting dynamics for currency traders, particularly in the GBP/USD pair.

Market Analysis: What the Data Tells Us

Now, let's examine the market data. Looking at the major indices, the FTSE 100 has shown resilience in the face of global trade tensions, largely buoyed by the recent trade deal announcement. The immediate beneficiaries have been automotive and steel companies, but we're also seeing positive sentiment spread across other sectors.

In the US markets, the S&P 500, Dow Jones, and Nasdaq have experienced increased volatility as investors try to gauge the full impact of Trump's tariff policies. While the US-UK deal provides some clarity, negotiations with other major economies remain ongoing, creating pockets of uncertainty and opportunity.

The VIX, our favourite fear gauge, has been elevated but not alarmingly, suggesting that while the market is cautious, there's no panic. This measured response creates a favourable environment for strategic traders who can navigate the nuances of the current landscape.

Gold has continued its upward trajectory, reflecting ongoing demand for safe-haven assets amid global trade uncertainties. With prices hovering around the $2,400 mark, I see further potential for upside as inflation concerns persist and central bank policies evolve.

Oil prices have been more volatile, responding to trade policy developments and shifting demand outlooks. In the coming weeks, the interplay between global growth expectations and transportation cost changes due to tariff adjustments will be crucial to watch.

Finally, the GBP/USD pair has shown interesting movements following the dual catalysts of the BoE rate cut and the US-UK trade deal announcement. The pound has found some support, but faces headwinds from divergent central bank policies.

Trading Opportunities for the Week Ahead

Based on my analysis, here are the key trading opportunities I'm focusing on for the week of May 19th:

1. UK Automotive and Steel Sector Play

The reduced tariffs on British cars and steel create a compelling short-term opportunity in these sectors. I'm particularly bullish on Jaguar Land Rover, which stands to benefit significantly from the reduced export costs to the US market.

My Strategy: I'll be looking to enter JLR positions on pullbacks with an initial 50% of my planned allocation. For risk management, I'm setting a stop loss at 5% below entry, with profit targets at +5-7% for my primary target and +10-12% for my secondary target, where I'll consider taking 50% profit.

For Aston Martin, I'm watching for dips into the range as an entry point, with a slightly wider stop loss at 6% given the stock's higher volatility.

Rolls-Royce presents a more conservative play – I'll enter if the price consolidates for two consecutive sessions, with a tighter 4% stop loss reflecting its relative stability.

To manage concentration risk, I'm limiting my total sector exposure to 15% of my portfolio. If my profit targets aren't reached, I'll reassess these positions after 7-10 trading days.

2. GBP/USD Forex Opportunity

The pound presents an interesting case given the conflicting forces at play – positive sentiment from the trade deal versus the impact of the BoE rate cut and divergence from Fed policy.

My Strategy: I'm looking to enter short positions in the 1.33 zone, with an alternative entry on pullbacks throughout the week to daily pivot levels such as R1,R2,R3. I'll be confirming these entries with technical indicators – specifically looking for Cluster 2.0 entries and the 50/200 ema aligning.

For risk management, I'm risking 1-2% of my account per trade, with a stop loss placed above the recent highs of 16th May 1.3330. My profit targets are set in the region of 1.3170, and I am closely monitoring the 12th May lows of 1.3140 for a longer-term exit. I will also focus on maintaining a minimum risk-reward ratio of 1:2 for my initial targets.

3. Gold as a Hedge

With inflation concerns in the UK and ongoing global trade uncertainties, gold continues to be an attractive hedge.

My Strategy: I'm looking to buy between $3100-$3200 per ounce, with additional entries on pullbacks to the $3140 support level. For breakout traders, wait for a daily close above $3,211 with increased volume as confirmation.

I'm allocating 3-4% of my portfolio to this primary position, with profit targets at $3,350. My stop loss is $3,149, just below the key support level.

4. US Markets Sector Rotation

As the market continues to digest the implications of Trump's tariff policies, I'm seeing opportunities in sector rotation within US markets.

My Strategy: I'm overweighting US domestic-focused companies less affected by tariffs, technology companies with limited international trade exposure, and healthcare sectors benefiting from domestic focus.

I'll be entering these positions after the market fully digests the implications of the US-UK deal (likely mid-week), using limit orders 1-2% below current market prices. My position sizing will be 2-3% per individual stock, with a maximum of 10% per sector.

For risk management, I'm setting profit targets at 8-10% from entry points, with stop losses at 7% below entry for individual positions. I'll also be spreading positions across a minimum of 3 different sectors for diversification.

5. UK Pharmaceutical Sector Opportunity

The "preferential treatment" mentioned for UK pharmaceuticals in the trade deal creates an interesting opportunity, albeit with some uncertainty.

My Strategy: I'm watching AstraZeneca closely and GSK. However, I'm waiting for more details on the exact nature of the preferential treatment before committing significant capital.

When I do enter, I'll be allocating 3-4% of my portfolio per position, with profit targets at 5-6% for an initial target and 10-12% over a 3-4 week timeframe. My stop loss will be set at 5% below entry.

If prices dip 2-3% but fundamentals remain unchanged, I'll consider adding to positions in 25% increments, while limiting my overall pharmaceutical exposure to 12% of my total portfolio.

Final Thoughts

The coming week presents a fascinating trading landscape shaped by the interplay of trade policy developments, central bank divergence, and market sentiment. The US-UK trade deal provides some clarity and opportunities, particularly in the UK automotive, steel, and potentially pharmaceutical sectors, while the broader implications of Trump's tariff policies continue to unfold.

As always, risk management remains paramount in this environment. I'm keeping position sizes measured, diversifying across sectors and asset classes, and maintaining strict stop-loss discipline.

I'll be closely monitoring developments throughout the week, particularly any clarification on the pharmaceutical aspects of the trade deal and any signals regarding negotiations with other major economies. In the meantime, I’ll be working on some property investing opportunities. If you want to get involved, you can register here: https://sl448647.typeform.com/to/TBx2tTzp

Until next week, trade wisely and stay disciplined.

Samuel Leach

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