Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

Today, we’re looking at cash ISA limits, banks in private credit, and UK-US trade negotiations. 

But first, our number of the week…

45%

That’s how much Tesla sales dropped in Europe in January. CEO Elon Musk has roiled the continent with his political activities, including calling for the imprisonment of Keir Starmer.

Sidekick Takeaway: For years, the ‘Musk premium’ associated with the billionaire’s dedicated army of retail investors helped justify outsized valuations for his companies. Musk’s foray into politics, however, is creating a ‘Musk discount’ as consumers increasingly turn away from Tesla and X.

Now to our main stories…

Only have a minute to read? Here’s the TL;DR:

• Chancellor Reeves is reportedly considering cutting annual cash ISA limits from £20,000 to £4,000 to boost retail investment in UK stocks. Two-thirds of cash ISA subscriptions are below £5,000, however, so this change is unlikely to be effective. 
• JPMorgan’s $50 billion push into private credit is evidence that the asset class is starting to blur with bank lending. While increased activity in private credit could create more investment opportunities, it also raises the risk of poor capital discipline.  
• US tariffs on certain British products are set to come into effect in March. A deal based on reducing the UK’s digital service tax, however, could be one way for the government to avoid a trade war.

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

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Slash & Burn: Reeves Considers Cutting ISA Limits

In a bid to increase investment in UK markets, Chancellor Reeves has floated the idea of reducing the tax-free limit on cash ISAs to £4,000 a year (from £20,000 currently). 

The aim of this measure would be to drive British savers toward higher growth assets like domestic stocks. As Reeves put it, “I do want to create more of a culture in the UK of retail investing”.

Sidekick is rolling out our Stocks and Shares ISA to customers soon, allowing investors to make tax-advantaged equity investments. We have also written extensively on the need to promote participation in UK financial markets. 

Despite this, we view cutting cash ISA limits as a bad idea. Increasing retail investment in UK equity markets is a laudable goal, but the proposed changes are unlikely to achieve that. 

Slashing the cash ISA limit won’t work

There are several reasons that reducing cash ISA limits is unlikely to fuel UK equity growth:

• Our analysis indicates that more than two-thirds of annual cash ISA subscriptions are under £5,000. Therefore, reducing the limit is unlikely to impact the majority of subscriptions.
• Surveys show that Britons prefer holding cash due to perceived safety and a lack of investment knowledge. As a result, the natural alternative to cash ISAs isn’t stocks – it’s stable assets like money market funds. 
• Finally, adjusting tax limits does nothing to address the fundamental challenges facing UK equity markets, including a listing exodus, stagnant growth, and dismal domestic productivity.

Sidekick Takeaway: The UK would undoubtedly benefit from a stronger culture of individual investing. The best way to build that culture, however, is by fostering investor education while addressing Britain's fundamental economic challenges – not ‘window dressing’ measures like slashing cash ISA limits. 

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Blending Together: Banks Take on Private Credit

Historically, bank lending and private credit have been two distinct asset classes.

Increasingly, however, the two are starting to blend together. This week, megabank JPMorgan earmarked an additional $50 billion for their push into private credit. 

These asset classes may not be distinct for long – with important implications for investors.

Bank lending vs. private credit

The traditional way for a company to borrow money is by taking out a bank loan.

Often, however, the bank won’t hold this loan on their balance sheet. Instead, they’ll sell pieces of it to clients and investors, forming the basis of the $1.4 trillion ‘syndicated loan’ market.

But syndicated lending comes with some downsides for borrowers – the process is often slow and lacks flexibility. Those pain points have created the growth opportunity for private credit.

Because private credit funds are deploying their own capital, they can execute loans at a quicker pace and on more flexible terms than bank lending.

For borrowers, this value proposition has proved hugely popular. At $1.5 trillion, the private credit market is now bigger than syndicated lending.

But banks are adapting…

Increasingly, however, banks are adapting to this new environment by spinning up their own private credit units.

In addition to JPMorgan, Goldman Sachs, Citi, and Wells Fargo are all pushing into this space.

In fact, Marc Rowan, the CEO of asset manager Apollo, has predicted that there won’t be much difference between private credit and bank lending in the coming years.

Sidekick Takeaway: For investors, this trend comes with a tradeoff. Increasing bank activity in private credit should help expand the number of income-generating opportunities on offer.

However, more money flooding into private credit could reduce capital discipline, leading managers to make questionable loans. Manager selection will become increasingly important as the space grows.

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Escape Hatch: How the UK Could Avoid a Trade War

This week, the UK’s trade secretary stated that he has had “very positive conversations” with the US on tariff issues. 

The comments come at a time when Trump is ramping up enforcement of Chinese tariffs while considering new restrictions on European countries.

Unless a deal is struck, US tariffs on British products like steel and aluminium are set to come into effect in March. 

While retaliatory tariffs are one possible response, the UK may be able to avert a trade war completely by offering a compromise on taxing American tech firms.

The UK may have to reduce digital service taxes

Trump’s recent memo calling for an investigation into digital service taxes could open up the opportunity for a trade deal:

• Many European countries impose digital service taxes that impose levies on revenue from online advertising. 
• Trump has complained perennially about these taxes, which he claims cost American companies like Alphabet and Meta ‘billions of dollars.’
• The UK has its own digital service tax of 2% on revenues derived from ‘search engines, social media services and online marketplaces.’

There is already some indication that the UK government is willing to compromise on this tax. Chancellor Reeves is set to review the £700m levy this year.

Sidekick Takeaway: Whether or not this digital service levy is justified, its existence could provide a compelling avenue for the UK to avoid a full-blown trade war. Offering to reduce the tax in exchange for a broader trade deal could be a small price to pay to avoid more sweeping tariffs.  

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Notices

Sidekick Money Ltd is a company registered in England and Wales (No. 13882980). Sidekick Money Ltd is authorised and regulated by the Financial Conduct Authority (FRN 984829). Our address is 21-33 Great Eastern St, London, EC2A 3EJ.

𝘗𝘭𝘦𝘢𝘴𝘦 𝘳𝘦𝘮𝘦𝘮𝘣𝘦𝘳, 𝘪𝘯𝘷𝘦𝘴𝘵𝘪𝘯𝘨 𝘴𝘩𝘰𝘶𝘭𝘥 𝘣𝘦 𝘷𝘪𝘦𝘸𝘦𝘥 𝘢𝘴 𝘭𝘰𝘯𝘨𝘦𝘳 𝘵𝘦𝘳𝘮. 𝘠𝘰𝘶𝘳 𝘤𝘢𝘱𝘪𝘵𝘢𝘭 𝘪𝘴 𝘢𝘵 𝘳𝘪𝘴𝘬 - 𝘵𝘩𝘦 𝘷𝘢𝘭𝘶𝘦 𝘰𝘧 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵𝘴 𝘤𝘢𝘯 𝘨𝘰 𝘶𝘱 𝘢𝘯𝘥 𝘥𝘰𝘸𝘯, 𝘢𝘯𝘥 𝘺𝘰𝘶 𝘮𝘢𝘺 𝘨𝘦𝘵 𝘣𝘢𝘤𝘬 𝘭𝘦𝘴𝘴 𝘵𝘩𝘢𝘯 𝘺𝘰𝘶 𝘱𝘶𝘵 𝘪𝘯.