Perspectives: Tactics for changing times
Trump's tariff announcements on “Liberation Day” shook up the financial markets. Some measures were subsequently relativized or suspended for 90 days. Nevertheless, US customs policy remains characterized by considerable uncertainty. Investors should maintain a high degree of flexibility in their investment strategy.
On April 2, Trump announced unexpectedly high import tariffs. As a result, the stock markets collapsed and bond yields rose. In response, Trump suspended the highest tariffs for most countries and offered a 90-day negotiation period. Tariffs of 10 percent currently apply to most countries, but after the 90-day break, higher tariffs could be imposed again from July.
The consequences of uncertainty
It remains uncertain how many countries will be able to conclude new trade agreements with the US and avert the higher tariffs. The longer this uncertainty persists, the greater the damage to the economy: consumers spend less, companies postpone investments and global trade stagnates. In addition, the import tariffs already in force are having a negative impact on economic activity.
The trade agreement concluded between the USA and the UK in May is an initial positive sign and could serve as a template for an agreement between the USA and the EU. However, the UK has accepted a tariff rate of 10 percent - and therefore higher trade barriers than a few months ago. The same applies to China: in May, the USA announced a temporary reduction in tariffs on Chinese imports. Nevertheless, they are significantly higher than at the start of the year and are likely to continue to weigh on the US economy in particular.
The USA is failing because of its own policies
A recession in the US remains unlikely. However, we have lowered our growth forecasts for the US for both this year and next year compared to the start of the year. One specific consequence of the import tariffs is rising prices: US companies that import goods will pass on some or all of the higher tariff costs to their customers. The result is higher inflation. This is bad news for American consumers and poses a dilemma for the Federal Reserve.
But it is not only the growth of the US economy that is suffering under Trump's policies. The USA's reputation as a reliable trading partner and ally has also been tarnished. You can find out more about the USA's role as a “safe haven” for investors in the article “Risks”.
Temporary slower growth in Europe
In Europe, the economic headwind from import tariffs will also be felt in the second half of the year. In our baseline scenario, we assume that the eurozone will avoid a recession. However, growth is likely to remain below the trend level in the coming quarters. We expect growth to accelerate in 2026, partly due to significantly higher government spending, such as infrastructure investment in Germany. Higher defense spending should also boost growth in Europe.
Assuming US tariffs remain largely unchanged, we expect the underlying growth of the global economy to slow in the short term before picking up again at the end of 2025 and into 2026.
Read more about investment and the role of technology in defense in the article “Impulses”.
What will the central banks do?
Although Trump would like to see lower interest rates, the Fed is unlikely to cut its key interest rates in the near future - mainly because of his own policies, as import tariffs are pushing up inflation. The European Central Bank (ECB) has more scope to cut rates as inflation expectations in the Eurozone are low. We therefore expect the ECB to continue its interest rate cuts in the second half of the year. This will benefit economic growth in Europe.
Uncertainty requires investors to be flexible
We have had a turbulent few months. And we expect the uncertainty to continue in the second half of the year. It is therefore important for investors to react flexibly to changing conditions. In the weeks following Liberation Day, we sold bonds and thus created liquidity. Overall, however, we remain slightly overweight in bonds. As the ECB is likely to continue its interest rate cuts in the coming months, we still consider European government bonds to be an attractive investment.
We have recently reduced our equity weighting to neutral as recession fears in the markets could increase once the negative impact of tariffs is felt. We expect the major equity indices to remain largely range-bound until the end of 2025. Should new economic concerns arise, the scenario could turn out to be more negative. However, if the Trump administration were to reverse its tariff policy through agreements with key trading partners, the picture for equities would brighten considerably.
With a little more cash, we can currently take advantage of opportunities as soon as they arise - as we did in mid-May when we made a tactical investment when the price of gold fell.
You can read about where we see further opportunities in the article “Opportunities”.
