Global growth resilience faces tariff tests
Key takeaways
US: Tariffs averaging 18% add stagflationary pressure by weighing on consumption, real income, and job growth, while inflation stays elevated but moderated by services disinflation. Powell’s Jackson Hole remarks shifted focus to growth risks, with markets now expecting a September rate cut and more accommodation ahead if the economy weakens.
Eurozone: Higher tariffs at ~15% will dampen growth into 2026, leaving domestic demand to carry the recovery as exports fade. Disinflation is ongoing, but sticky services and food inflation mean growth remains modest at around 1% with inflation converging toward target.
Emerging Markets: EMs maintain a growth premium with upgrades for China and India, while fiscal reforms and stimulus in BRICS cushion tariff impacts. Central banks show more independence from the Fed, but sustaining growth while managing stability risks will be the key challenge.
Lessons from the summer: earnings clarity and shifting yield curves
Key takeaways
The summer has not interrupted the strong equity markets rally that started on 8 April. The earnings season has even amplified the positive mood, even more in the US and especially in the case of the Big Tech. Financials, especially in Europe benefitted too. As a result, the S&P500 is even more concentrated than it was at the start of the year, and valuations are once again at their highest. This could provide an opportunity for other markets to distinguish themselves, at least temporary. In this game, Europe is a serious candidate if we consider its level of valuation.
US Treasuries rallied over the summer, with softer payroll figures and downward revisions supporting expectations for Fed rate cuts. In contrast, European, UK, and Japanese yields moved higher, driven by fiscal expectations in Japan and supply pressures in Germany. Credit markets remained resilient, with Euro IG near long-term averages and risk-adjusted returns supported by lower volatility.
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