07/07/2025

Although markets have continued their upward momentum over the past week, particularly in the United States, thanks to factors such as the trade agreement with Vietnam, strong US employment data for June, the final approval of Trump’s tax reform, and the perception that the Fed is eager to resume its rate-cutting cycle, the looming threat of the end of the trade truce continues to weigh on investors.

Indeed, the resurgence of trade tensions coincides with the end of the tariff pause established after the so-called "Liberation Day" in April. In this new environment, the United States has resumed its bilateral offensive, with strategies focused less on symmetrical liberalization and more on securing unilateral concessions. The agreement with Vietnam is telling: tariffs of 20% are imposed on goods originating from the country, and 40% on products arriving from third countries using Vietnam as a transit point. In contrast, US goods are exempt from any tariffs. This setup breaks with the principle of reciprocity and cements 10% as the minimum threshold, even in cases where an agreement is reached.

Just days before the expiration of the trade moratorium, President Trump has confirmed that his administration will begin sending formal letters to its partners, notifying them of the new tariffs set to take effect on August 1. These notifications include tariffs that could range from 10% to 70%, exceeding even the levels originally proposed in April. With this move, Trump increases the pressure on countries that have yet to finalize bilateral agreements with the United States, reinforcing his ultimatum strategy and making it clear that, for those unwilling to yield, penalties will be imposed unilaterally. This is no minor gesture: it signals a shift from threats to action and sets the tone for an increasingly direct and asymmetric trade policy.

The week ahead shows no major macroeconomic releases on the agenda, giving greater prominence to geopolitical and trade-related factors. In this context, market attention will inevitably be focused on the outcome of the tariff deadline set by the White House, which expires this Wednesday, July 9. The risk lies not so much in the immediate decision, which could vary in intensity, but rather in what it signals about the structural direction of US trade policy over coming months.

We envisage three possible scenarios. The most benign would involve an extension of the tariff moratorium for several strategic partners, accompanied by announcements of progress in negotiations and the signing of framework agreements similar to the one already reached with Vietnam. In this case, uncertainty would remain contained, and the market could interpret it as a continuation of the status quo. A second, more adverse scenario would entail a tactical reactivation of tariffs, with implementation deferred to August 1. This approach would allow the US to maintain negotiating pressure without fully disrupting the current balance, but it would once again bring trade policy to the forefront of market concerns. Finally, the most severe scenario would involve the unilateral reimposition of high tariffs on multiple partners, coupled with announcements of widespread retaliatory measures. This would represent a clear break from the more moderate tone embraced by the market consensus in recent weeks.

And this is precisely where the greatest risk lies. The prevailing view among investors is that we are in a soft-landing scenario, with economic activity holding up better than expected, inflation trending lower, and central banks continuing to cut rates. However, should trade risks intensify again and highly punitive tariffs be imposed, the soft-landing scenario would be severely undermined, especially if it appears that this time there will be no reversal from the Trump administration. The economic impact of tariffs is widely acknowledged in academic circles: they weigh on economic growth while driving up consumer prices, increasing the risk of stagflation.

We therefore conclude that the growing complacency reflected in recent shifts towards more cyclical assets contrasts sharply with the complexity of the current environment. In our view, this context warrants a prudent approach. Our positioning remains cautious, though not pessimistic.

We believe the scale and potential severity of the latent risks require preserving enough flexibility to pursue two key objectives: on the one hand, limiting portfolio volatility if the environment deteriorates, and on the other, retaining the ability to act if attractive opportunities arise.