Trump's Tariff Threats, Q2 Earnings, and Asian Market Outlook

New Tariff Threats and Market Reactions

• ⚠️ President Trump has escalated tariff threats, imposing a 30% tariff on EU and Mexico goods and a 35% tariff on Canada.
• 🤔 Markets have largely remained resilient, appearing to bet on Trump backing down, a pattern seen with previous U-turns.
• 💡 The key question is whether this complacency is justified, especially with the August 1st deadline approaching.

Second Quarter Earnings Outlook

• 📊 Wall Street anticipates the weakest earnings season since mid-2023, with EPS growth expected under 5% year-over-year.
• 📈 UBS forecasts closer to 6% growth for 2025, reaching $265 per share on the S&P 500.
• 🏦 Financials are expected to perform well, supported by higher interest rates boosting Net Interest Income (NII) and Net Interest Margin (NIM).
• 📈 Trading revenue is also predicted to be strong due to Q2 market volatility, particularly in April.

Tariff Impact on Commodities and Inflation

• 📉 Rising costs for materials like tin plate steel due to tariffs are impacting companies, as seen with Kagra.
• ⚖️ UBS's base case suggests a 15% overall tariff rate, with consumers bearing the brunt, contributing to persistent inflation above the Fed's 2% target.
• 📈 Commodity prices are highly volatile due to policy uncertainty, making it difficult to predict their impact.

Global Economic and Market Perspectives

• 🌏 Asian markets have largely shrugged off tariff noise, with some disparity in performance (e.g., Kospi holding up well).
• 🤝 Doors remain open for negotiations, and the possibility of Trump backtracking provides some market comfort.
• 🚗 Key sticking points in trade talks include agriculture and specific sectoral tariffs, such as the 25% on cars for South Korea.
• 📊 Korean export and current account data have remained solid, supporting regional equity markets.

Japanese Economy and Bank of Japan Policy

• 🇯🇵 Investors are focused on Japan's CPI data due to concerns about inflation and rising yields.
• 🏦 The Bank of Japan (BOJ) remains reluctant to hike rates, weighing external challenges over domestic inflation, which negatively impacts the bond market and the yen.
• 📉 Despite tweaks to issuance, bond markets are still under pressure, indicating the BOJ's policy bind.

Cryptocurrency and Federal Reserve Credibility

• 🌐 Cryptocurrencies are here to stay, though many remain highly speculative; stablecoins are increasingly backed by treasuries.
• 📉 A potential removal of Fed Chair Powell could lead to a loss of credibility, potentially causing a shift away from the dollar towards Asian currencies.
• ⚠️ Pressure on the Fed risks uncontrolled inflation and monetary policy, making a move away from the dollar a likely outcome.