War/Conflict
Trump’s foreign policy can be explained by rational US interests, but it requires settling the trade war with allies sooner rather than later. Book gains on EUR-USD for now.
Trump will pull back from the trade war when stocks approach bear market territory. He will not withdraw from NATO. Favor European stocks on fiscal policy.
The tariffs on Canada and Mexico will come into effect as scheduled while the tariffs on China will be doubled. In the Middle East, Iranian response to any attack will threaten Middle Eastern oil supply. Meanwhile, Chinese fiscal support will surprise to the upside at the Two Sessions. But Trump's China policy will cause volatility. Now that the stock market is cracking, reinitiate defensive trades, such as long treasuries versus US stocks and long global defensives versus cyclicals.
Trump’s ceasefire talks are positive for Germany – and so was the German election result. But Trump’s tariffs will hit Germany soon. Investors should use near-term volatility to increase exposure to Germany.
President Trump is negotiating a ceasefire in Ukraine. This will be a marginal headwind to some commodities which benefitted from the conflict like natural gas and wheat, and will be a marginal tailwind for European assets, specifically EM Europe. Use Trump’s tariff shock as an opportunity to buy European assets.
