Summary

In this Investment Talks we explore recent moves in financial markets and possible explanations, alongside our expectations and investment implications.

Key points

  • Trump has delivered above expectations on tariffs, taking a major step towards ‘detoxifying’ the existing trade regime. A 10% base levy with reciprocal tariffs up to 49% against major trading partners, plus a confirmed 25% tariff on car imports. The effective US tariff rate is expected to rise to over 20%, its highest level in a century. We expect negotiations to intensify and uncertainty to remain high, in particular until April 9th, when customised tariffs are due to be implemented. 
     
  • Main countries affected: Asia faces the highest tariffs, impacting not only China but also South Korea and most Southeast Asian nations, while Latam is relatively less affected. Longer term, the slowdown in globalisation will continue, with further re-rerouting of supply chains and new regional alliances emerging. 
     
  • US economic slowdown. While tariffs may spike inflation in the short term, their real impact will be on growth, especially as the US economy already faces a significant slowdown amidst rising policy uncertainty. Therefore, the risk of a US downturn is growing, but at this stage it is still premature to call for an economic recession. 
     
  • Investment convictions: Since such a large increase in tariffs had not been previously priced in by the market, the reaction has been with heightened volatility – a trend likely to persist in the coming weeks unless meaningful progress is made in negotiations, and a new trade framework begins to take shape. Market volatility is set to remain high in the next weeks. A marked slowdown in earnings growth is now likely, as costs could increase (higher labour and production costs). As the probability to move towards downside financial regimes increases, we have reduced the equity stance. We continue to believe it’s key to maintain equity hedges and gold. On US equities, we believe the impact will be more pronounced on US mega caps, while small and mid caps could benefit. On equity allocation, we continue to favour a diversified stance including selective emerging markets. On duration, we remain active with a positive stance in Europe and a close to neutral stance in the US. In currencies, as we already anticipated, the US dollar is likely to remain under pressure, while the Yen is acting more as a safe haven in the case of a sharp deterioration of the economic environment
2025.04.04 - News - liberatin day tariffs - ann initial assessment

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