Hot Topic
Trump's Tariff D-Day brings a negative surprise to financial markets already anxious over a declining US cyclical economy. Investors should sell risky assets, increase safe havens, and overweight US assets in the near term.
Stocks will continue to struggle in the second quarter as President Trump tries to implement tariffs. Tax cuts will only temporarily dispel growth fears, if at all. Middle Eastern instability will add oil price surprises to an environment that is looking fairly stagflationary.
The US economy has never entered a demand-driven recession without labour demand running below labour supply and without the job vacancy rate running below the unemployment rate. Right now though, US labour demand is still running 1.7 million workers above labour supply, and the job vacancy rate is running comfortably above the unemployment rate. This suggests that the labour market is still supply-constrained, and that a demand-driven recession is not imminent. We discuss the investment implications. Plus, more about our ‘trade of the century’: long cotton versus coffee.
Trump will pull back from the trade war when stocks approach bear market territory. He will not withdraw from NATO. Favor European stocks on fiscal policy.
The tariffs on Canada and Mexico will come into effect as scheduled while the tariffs on China will be doubled. In the Middle East, Iranian response to any attack will threaten Middle Eastern oil supply. Meanwhile, Chinese fiscal support will surprise to the upside at the Two Sessions. But Trump's China policy will cause volatility. Now that the stock market is cracking, reinitiate defensive trades, such as long treasuries versus US stocks and long global defensives versus cyclicals.
Trump’s ceasefire talks are positive for Germany – and so was the German election result. But Trump’s tariffs will hit Germany soon. Investors should use near-term volatility to increase exposure to Germany.
The rise of the far-right is challenging mainstream German politics. The CDU/CSU and SPD will govern Germany again after the election. A ceasefire in Ukraine will offer some relief, but Trump’s policies will keep tensions high.
President Trump is negotiating a ceasefire in Ukraine. This will be a marginal headwind to some commodities which benefitted from the conflict like natural gas and wheat, and will be a marginal tailwind for European assets, specifically EM Europe. Use Trump’s tariff shock as an opportunity to buy European assets.
This week, our three screeners focus on providing equity insights based on the impact of tariffs, and trade policy uncertainty in general, helping clients identify stocks exposed to these shocks.