August Edition 01: What are the implications of recent trade deals?
Each month, we discuss key issues facing investors. In this edition, we explore the implications of recent trade deals.
Key takeaway: Following the US-Japan trade deal, which lowered Japanese tariffs to 15%, the US and the EU also announced a 15% tariff rate on most EU goods sold to the US, plus additional investments in US energy products and military equipment. These deals have de-escalated global trade tensions substantially. We maintain a risk-on stance and mitigate uncertainty through multi-assets, including quality bonds (e.g., UK gilts) and gold.
What are the implications of recent trade deals?
The US and Japan have concluded a deal to reduce US reciprocal tariffs on all Japanese products from 25% to 15%. Additionally, Japan also agreed to invest USD550bn in the US and open its markets to US automobiles, rice and agricultural products.
Following this, the US and the EU also announced a 15% tariff rate on most EU goods sold to the US, including automobiles. Moreover, the EU will purchase US energy products and chips (USD750bn) and make additional US investments (USD600bn) as part of the deal. While this is welcome by the market, some sectoral tariffs are still not clear and muted demand for autos, agriculture and pharmaceuticals continues to weigh on the region’s Q2 earnings growth. Nevertheless, we see pockets of opportunity in Financials, Industrials and Utilities. The recent trade deals have de-escalated global trade tensions substantially.
While tariff impacts may linger in the US, we do not expect inflation to surge due to accelerating tech-led productivity gains and anticipated rate cuts. As equity markets remain resilient, we maintain a risk-on stance and manage uncertainty through diversification across multi-assets, including quality bonds (e.g., UK gilts) and gold.
The trade deal between the two largest economies is expected to bring stability
In the next edition, we will discuss the factors of US equity rally.
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