Naomi Rovnick and Amanda Cooper
LONDON (Reuters) – Global markets tell conflicting stories about the long-term impact of US tariffs on growth.
President Donald Trump’s volatile approach to trade policies that generated so much volatility earlier this year appears to have been wary of responding to his almost-day announcement that who or what might be hit by tariffs.
The latest target is Canada, and Trump said Thursday that he will face a 35% obligation, with most other trading partners earning comprehensive tariffs of 15% or 20%, barely flapping in the wider market. An announcement about Europe is imminent.
Investors are more typical of late-stage bull markets than about confidence in the ultimate benign long-term outlook, with pessimists quietly preparing for the tricky times ahead, while optimists scramble to catch the rally before it arises.
One corner contains high-risk assets such as stocks and cryptocurrencies. Wall Street stocks have hit record highs that drive a string of interest cuts from the Federal Reserve as enthusiasm about artificial intelligence and the economy gradually slows down and the blow to inflation from tariffs has proven to be mild so far. Bitcoin is close to a record $112,000.
The other corner is government bonds, gold and even crude oil. All of this reflects the belief that tariffs could derail the US economy and break growth everywhere.
Neil Billel, Prime Minister Mitten’s chief investment officer, said the second half of this year is the time for the impact of Trump’s tariffs to be revealed.
“It’s difficult for me to see all of this with all forms of confidence and certainty,” he said.
His main concern with stocks was the high participation of US households on Wall Street.
“The stress in the US economy that affects consumers and affects the stock market will be a rather brutal, bloody downward spiral.”
Trump’s 90-day suspension following the April 2nd release of the “liberation day” tariff was replaced by the application of taxable guns to large and small trading partners just before the second quarter revenue season.
“Things have settled, but not in a positive way,” said Amundi’s head of global macromahmoud Pradhan.
“If we calculate the average across the board, the effective tariff rate for all imports that come to the US is about 15%,” he said. “This is very negative about the growth of all countries involved in global trade.”
Last month, the World Bank said its 2025 global growth forecast to a quarter percentage point, down to 2.3%, with tariffs and growing uncertainty leading to “significant headwinds” for almost every economy.
With so much uncertainty lying on US assets, investors’ cash has flowed into European stocks and bonds, gold, Chinese tech stocks, or emerging market currencies for much of the year.
Getting the wheels of the stock market rally hopes Fed Chairman Jerome Powell will put pressure on Trump to save the cave.
However, the data is too strong to justify the aggressive slackness of monetary policy and too soft to argue that tariffs are ineffective. U.S. employment figures show that the economy still generates jobs with solid clips, but business activity surveys show factories and services are flagging them.
In the meantime, Trump’s groundbreaking tax cuts and spending bills would add $3.3 trillion to the country’s deficit.
Benchmark 10-year US Treasury yield (^TNX) withdrew from 4.8% to 4.35% from its 15-month peak in January.
“Bonuses focus on growth (decrease) rather than inflation, so when they improve to announcing the trade war, bonds are leaning towards growth and interest rate reductions.
“I don’t think this can continue,” he said. He added that he remains neutral to stocks and holds a slightly overweight position in government bonds.
Gold (GC = F) will stage a 26% ferocious gathering this year, exceeding $3,300 per ounce, serving as a hedge against macro and geopolitical uncertainty.
Kevin Thozet, a member of the investment committee for French asset manager Carmignac, said he is hedging against a decline in the US stock market, but he thinks this is unlikely at the moment as retailers are jumping in to buy market dips.
He further said Trump’s tax cuts bill could offset some of the impact of tariffs, but said the additional debt needed to fund those cuts could raise the Treasury yield to 5% over the next three months.
“We see a big crack in the US market despite the Fed having ample room for cuts,” he said.
(Reporting by Amanda Cooper and Naomi Rovnick, Editing by Elaine Hardcastle)
