On 23rd March we had published an opinion piece on expectations on US reciprocal tariffs and how risk assets were complacent going into such a seismic event. Today after seeing the full scope of the reciprocal tariffs announced by Trump, we are more than certain that we are in for a sustained stormy environment for US equities. We see 5200 now on S&P 500 by June end itself. We see a broken global trade system where multi-lateral blocs might be formed in response to today’s US reciprocal tariffs. We see China/Eurozone/India/Vietnam/Japan as major loosers after today’s event. We see UK/Canada/Mexico as relatively better placed than other sovereigns after today’s events. We see the erstwhile winners of globalisation such as cheap manufacturing places of China/Vietnam/Taiwan losing their relevance in global trade. While the US economy might definitely go in recession by end CY25, other sovereigns might use fiscal/monetary policy tools to counter the growth impact on their domestic economies. We believe today’s events are a precursor to further trade negotiations or even a large scale one-time DXY depreciation agreed upon by major US trade partners or even a Mar-o-logo accord where US trading partners decide to invest in long end USTs to get reprieve from proposed reciprocal tariffs. But till the time fog clears, US economy might have suffered significant damage leading to an outright recession by end CY25. While the Fed reaction function might be delayed but eventually it might come earlier than the Trump put. As employment conditions worsen and monthly NFPs start coming below 75k levels, Fed’s employment mandate & macro stability mandate will take precedence over the price stability mandate. We still expect to see 3 rate cuts by Fed of 25 bps each in REMCY25.
