Afsaneh Beschloss on Tariffs, Market Volatility, and Interest Rate Outlook

Impact of New Tariffs

• 🎯 The market was not expecting tariffs as high as the announced 25%, which is higher than the anticipated 15-17% average.
• ⚠️ This discrepancy has led to significant market reactions, including strong moves in currencies and equities, and is expected to continue causing choppiness and volatility.
• 📈 The VIX is up but not yet at panic levels, indicating a need to monitor the situation closely.

Economic Slowdown and Consumer Impact

• 💰 Tariffs, even at a 17% average, represent a substantial tax on consumers, who will bear a large share of the cost.
• 📉 This could lead to slower US growth, with the market awaiting upcoming earnings reports for confirmation.
• 📊 Outflows from US equity markets continued in Q2, with some funds moving into small-cap and international markets.

Interest Rate and Dollar Outlook

• 📉 There's a growing scenario that interest rates could be cut sooner than expected, potentially in September, due to economic slowdown.
• ⚠️ This contrasts with previous expectations of rate cuts later in 2025 and has implications for the US dollar.
• 🌍 Investors are increasingly considering diversification away from US assets over time, looking towards European and Japanese securities, and emerging markets.

Valuations and Investment Strategies

• 📈 US stocks are currently considered the most expensive in the world, making them vulnerable given potential negative tariff impacts.
• 🏦 Institutional investment committees are exploring other asset classes, including European and Japanese stocks with better price-earnings ratios, and emerging market stocks.
• 💰 Gold is also seeing increased interest as a potential safe haven, with central banks and individuals considering it as an alternative to the US dollar.
• 💱 Institutions are increasingly engaging in FX hedging to reduce their US dollar exposure, even when investing in US stocks expected to benefit from AI.

Vietnam and China Trade Dynamics

• 🇻🇳 Vietnam is seen as a beneficiary of trade shifts, having made early trade deals, but its market size is limited.
• 🇨🇳 China has been surprisingly quiet recently, and it remains to be seen how it will respond to potential further tariffs, especially on groups like BRICS.