EU-US Tariff Deal: Ursula Sings from the President’s Hymn sheet
Equity Markets will like the deal. It removes trade war uncertainty. But more for equities than any other asset class, the uncertainty about the hit to profits and discount factors from the US shift from 2.5% to 20% plus tariffs is intact and unknown. So beware! The world is not a better place than before liberation day, but equity markets think so. I don’t! Also the unknown effects of tariffs on growth, tax revenues and inflation are still to be felt in Treasury markets and the US$. For the moment the Treasury and US market worry beads are all about BBB. I would not chase equites on this news. And particularly not in the EU where this deal is pretty disastrous but better than a trade war – just. I will stay focussed on wealth preservation assets (gold, oil etc), short US$, long Eur (with worries), short US 30yr Treasuries and 10yr JGBs and long 2 yr Bunds. Wealth Preservation Portfolio is at the end.