April – Flip-flop on tariffs

This month began on a strong note, on the “Liberation Day” tariffs accounced by President Trump on April 2 had the impact of a thunderclap and markets collapsed. In the space of 3 days, the S&P500 lost 15%, the Nasdaq -16%, the Eurostoxx -14.5%, the NIKKEI -14%. By month end, with some talks of reprieve and reversals, investors' fear had diminished, and the NASDAQ, for example, was up 0.9%, which seemed unthinkable after April 2nd. But with heightened uncertainty, investors remain perplexed by what lies ahead, not excluding the possibility of a further downturn.

Data source : Bloomberg

The trade war unleashed by the Trump administration threatens to bring back inflation, inciting the Fed to reduce its interest rate. However, the US central bank decided not to cut rates, in a welcome sign of independence, which displeased the American President.

Escalation of tariffs with China of up to 245% on certain exports is already impacting both countries, but Beijing has not taken a strong stance and is making no significant concessions. These levels represent an entirely different scale to the tariffs imposed during the trade war of 2018. If this goes on, global growth will inevitably be impacted as these two markets represent a third of global GDP.

Our summary recommendations

While April was alarming for investors, we saw it as an opportunity to use the volatility in our favor to stack up on low-strike, coupon paying, structured products.

Moreover, our prudent positioning in equities, bonds and high allocation to low or decorrelated alternative investments greatly reduced the impact of negative market action.

We recommend sticking to our current tactical positioning until we get more visibility on the magnitude and time horizon of the tariffs, which have already hurt growth in the US and elsewhere.

Chart of the month

Following Trump’s tariff announcements, in particular the tit for tat with China, shipping from China to the US drastically dropped, both in terms of number of vessels (green curve) and volume (red curve). These represent estimates of dry cargo ships using aggregate data on a 15-day rolling average to reduce short-term volatility.

To note, this time around, the Trump administration may close a loophole that existed until now, which enabled Chinese companies to simply ship their goods first from other countries with no tariffs in place.

Source: Bloomberg

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