1. Effects of tariffs on U.S. Economy.

Tariff actions currently in effect and announced by the Trump administration could lower U.S. GDP by up to 0.65 percent, a report by The Tax Foundation has found.

This includes new tariffs on China, currently (partly) paused tariffs on Canada and Mexico and tariffs on global imports of steel and aluminium that went into effect today. Also part of the calculation are tariffs on EU goods of 25 percent, announced February 26.

All these tariff actions combined could also lower U.S. full-time employment by almost 600,000.

2. Japan a safe haven amid tariff chaos.

Japanese stocks are showing resilience to the selloff in global equities, making investors positive about the near-term outlook.

Strong earnings and reasonable valuations are among the key reasons for their optimism. “In a world of rich valuations and heightened geopolitical uncertainties, we believe Japanese equities are well positioned to deliver attractive returns,” Rick Friedman and John Thorndike of GMO’s Asset Allocation team, wrote in a note.

They cited Japan’s exit from deflation, corporate reforms and “strong” balance sheets among reasons for their view.

The Topix is now trading at 13.9 times its expected earnings, below the average over the past five-, 10- and 15 years. It’s also cheaper than the Euro Stoxx 600, in contrast to the past three years when it was mostly pricier than European shares.

“Japan looks to be in a decent place relative to the rest of Asia right now,” said Alex Cousley, an investment strategist at Russell Investments Group. “The economy is doing ok. Earnings growth expectations have been quite resilient in the face of softer global expectations.”

3. US stocks’ bottom is probably here, JPMorgan analysts say.

“If US equity ETFs continue to see mostly inflows as they have thus far, there is a good chance that most of the current US equity market correction is behind us,” strategists including Nikolaos Panigirtzoglou and Mika Inkinen write in a note.

Credit markets, which remained relatively calm during the recession scares over the previous two years, “are once again more dismissive of US recession risks than equity or rate markets”

The recent correction appears to be more driven by quant fund position adjustments and less driven by fundamental or discretionary managers reassessing US recession risks. “We estimate the potential equity buying from month-end rebalancing by balanced mutual funds as well as quarter-end rebalancing by US defined benefit pension funds and Norges Bank/GPIF/SNB at around $135b”

4. Europe is waiting for real money to drive rotation.

Investor conviction about the rotation from the US into international stocks is growing, with market bulls betting on big inflows to propel Europe higher in the months to come.

While the US equity selloff has dented a global stock rally, there are many voices now favoring the European market. The sell-side has overwhelmingly flipped, with UBS, Goldman Sachs, Citigroup and HSBC strategists all seeing further gains ahead. A potential truce in Ukraine, fiscal stimulus and looser monetary policy are among the tailwinds that should lure more asset managers. Even as bond yields rise, the equity risk premium is improving in Europe.

“We see value in retaining upside exposure to the potential that EU equities still offer, while remaining cautious about implementation risk,” say Bank of America derivatives strategists including Abhinandan Deb. They see Euro Stoxx Banks and MDAX upside calls as the cheapest “bang for buck” for European upside, while MDAX vs DAX upside relative value is a way of getting exposure to German domestic growth and resilience to any global risk-off moves.

5. Copper expected to rise further, says Citigroup.

Citigroup analysts predicted the industrial metal may rise on investor optimism over policy support in China.

China is widely anticipated to introduce further stimulus to upgrade its renewable energy infrastructure at the Third Plenum meeting in mid-July.

These additional measures, specifically targeting domestic property and grid investments, are expected to support copper prices in the near term, Citi analysts said in a note.

The bank also noted that the recent pullback in copper is mainly due to weaker manufacturing data globally, which it believes is only temporary.

While cyclical demand might have softened in June, the overall copper consumption for the first half of 2024 remains robust at around 4% year-over-year growth, Citi said.

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