Thoughts for the day NEWS

14 July 25 NOT Recommendations

A 30% tariff is on the horizon for the EU and Mexico, according to the president.

The pressure on Jay Powell to step down from the Fed is increasing.

Yet, it appears that no one in the markets is concerned about these developments.

As earnings season approaches, will tariffs finally impact the bottom lines?

Trump feels empowered by Tariffs

The European Union intends to collaborate with countries affected by the tariffs imposed by Donald Trump, and will initiate discussions with Canada and Japan regarding potential cooperation, according to sources familiar with the matter. Additionally, it is postponing countermeasures against the United States to provide more time for negotiations.

EU competition chief Teresa Ribera announced that the bloc aims to enhance trade agreements with India and other nations in the Asia-Pacific area, emphasizing the ongoing trade discussions with India, which are anticipated to conclude by the end of the year.

The EU will prolong the suspension of trade countermeasures against the US until August 1 to facilitate additional negotiations, as stated by European Commission chief Ursula von der Leyen, who mentioned that the bloc will keep preparing further countermeasures and favours a "negotiated solution."


Friedrich Merz stated that Trump's proposal of imposing 30% tariffs on the EU would impact German exporters "to the core."

If such a situation were to occur, the German government might have to delay certain aspects of its economic policy initiatives, Merz stated during an interview with ARD public broadcaster on Sunday. "This would overshadow everything and profoundly impact the German export sector."

Merz mentioned that he is working closely with other EU leaders to prevent tariffs of this scale from being implemented.

"This necessitates two things: solidarity within the European Union and effective communication with the American president," the conservative leader remarked.

When asked if Germany backs counter-tariffs against the US, Merz responded: "Yes, but not before August 1." The chancellor indicated that he had engaged in extensive discussions over the weekend with both French President Emmanuel Macron and European Commission President Ursula von der Leyen, along with a call to Trump on Friday.

“We want to use this time now, these two and a half weeks until Aug. to find a solution,” Merz said. “I am really committed to this.”

Trump is set to unveil a new strategy to supply Ukraine with arms, which is anticipated to feature offensive weaponry, according to Axios. The president expressed his deep disappointment with Vladimir Putin, stating that he "speaks kindly" but then proceeds to "bomb everyone in the evening."

Emmanuel Macron plans to double France’s annual defence budget to €64 billion by 2027 from when he took office in 2017. Macron said the extra spending will be financed through economic reforms to boost productivity and activity, and a contribution from everyone, rather than debt.

Trump's associates are examining the renovations at the Federal Reserve's headquarters as potential justification for Jerome Powell's removal. Deutsche Bank cautioned that Powell's ousting could trigger a selloff in both the dollar and Treasury securities.


Federal Reserve chair candidate Kevin Warsh emphasized the necessity for a "regime change" at the central bank, expressing criticism of its existing strategy and advocating for interest rate reductions.


China's exports increased by 5.8% last month, marking the first acceleration in growth since March, driven by a decrease in US tariffs and strong demand from major international markets. However, this uptick may be short-lived due to trade uncertainties as global inventories begin to rise.
Auto vehicle exports led the rebound, surging 23.1% YoY in June (May: 13.7%). Hi-tech exports rose 6.9% YoY, the strongest in three months. Exports of toys and furniture also improved despite higher tariffs.

However, Shipments to the United States decreased by 16.1% compared to the previous year, following a decline of more than 34% in May. Chinese companies managed to boost their sales in alternative markets to offset the reduction in the US, with exports to the 10 Southeast Asian countries in the Asean group rising by 17% year-on-year.

China Data on property sales, 30-city property sales declined further to -26% YoY in the first 12 days of July from -8% YoY in June.
Steel production weakened to -5% YoY in June from -2% YoY in May.

Bob Elliot CEO and CIO of Unlimited has a video on Linkedin about the tariff flow through rates and the impact on washing machines and second hand cars. He also mentions the cost increase per person to recreate a US domestic job when moving factories back to the USA. Worth watching at the link below.
https://www.linkedin.com/posts/ttoillebob_many-of-the-dynamics-that-drove-the-dollar-activity-7349154204331982848-d40_?utm_source=share&utm_medium=member_desktop&rcm=ACoAAADxK9ABTd0mFOh10M6M2I6_C2G86fCcQcY

This is my initial thoughts in partial response, and they certainly require much deeper research.

Bob refers to washing machines and cars, which are significant one-time purchases, but what about lower-priced items? For instance, a $1 disposable pen manufactured in China would see its price effectively double because of tariffs. As a result, no one would purchase this item due to the price hike, causing the entire buyer spectrum to shift from a Chinese $1 pen to the next least expensive option, say at $1.15, representing a net price increase of 15%. This alternative might be produced in Vietnam or Mexico, both of which also face tariffs. The outcome? Higher prices coupled with a notable decline in sales volumes.

In the UK, a £0.05p a tax was imposed on plastic bags, a seemingly trivial amount. However, this led to a staggering 90% drop in sales of plastic bags, demonstrating how the psychology of taxation/price hike can alter consumer purchasing behaviour. Could a similar scenario unfold for US consumers?
Will the US consumer reduce impulse purchases in favour of buying only necessities?

A broader and potentially more alarming issue is the shift in global exports and its repercussions. With 100% tariffs, Chinese exports to the USA have nearly come to a standstill, while these goods are being redirected to other countries, creating a flood of inventory. The resulting complications are on the verge of surfacing in the data.

The Euro has appreciated by 15% against the USD this year. Although the Euro still faces tariff threats, its strength allows for Chinese products to be offloaded into the EU market. How long will it take for the EU to respond with their own trade disputes? How soon will European companies experience a significant decline in exports and a build up in inventories, leading to price/margin cuts?

Within the EU, particularly in Germany and France, growth has been stagnant for two years. The ECB has reduced rates eight times, yet the currency remains 15% stronger while domestic growth is flatlining.

In contrast, the US continues to see GDP grow and leads in technology, with Nvidia valued higher than the entire German stock market.

The next area of concern is non-US growth. Will the ECB be compelled to lower rates to zero to encourage any growth? They don’t want to say it out loud, but you can almost smell QE coming and already talked about in Switzerland.

What will occur when the FED initiates rate cuts under Trump’s increased influence over FED policy, potentially weakening the dollar and worsening Europe’s challenges?

I believe the EU is at a pivotal point. They are poised to initiate the next phase of rate reductions, which I expect to see happening globally. If the EU and others start implementing additional trade tariffs (trade wars) against China to halt trade dumping, to curb the influx of increasingly affordable and high-quality products saturating domestic markets, I suspect prices will fall, leading to a deflationary spiral.

Will China be forced to stimulate its domestic buyers to alleviate the oversupply flooding other markets? It’s one potential answer, but I expect too little and too late.

At the same time, the EU lacks a genuine technology leadership; they are significantly lagging in the Ai competition, putting them at risk of being overlooked and seeing a slowing of growth and falling foreign investment.

Foreign investors neutral position is not all-in on US assets like we have seen in recent years. Even a modest shift toward more normal allocations could create a drag on US assets and a weaker US Dollar for years to come, increasing the pressure on the ECB to cut rates to stop the EURO strength to the USD.

While I acknowledge that the US tariffs have their own issues and domestic repercussions, the more pressing concerns lie elsewhere and will continue to develop. Of course, this is just my theory at the moment, which I will look to follow up and publish in more detail at a later date.



Jamie Dimon tells Europe:”You’re Losing”

JP Morgan Chase chief executive Jamie Dimon warned European leaders they have a competitiveness problem and that they are currently “losing” the battle to rival the US and China.

“Europe has gone from 90 per cent US GDP to 65 per cent over 10 or 15 years. That’s not good,” Dimon said at an event in Dublin organised by the Irish foreign ministry. “You’re losing.” The comments from Dimon, one of the most influential voices in global finance, underscore the challenges facing the EU as it battles to invigorate its economy.

Mario Draghi, the continent’s former top central banker, last year demanded a new industrial strategy for Europe with annual investment of €800bn to maintain competitiveness with the US and China. “We’ve got this huge strong market and our companies are big and successful, have huge kinds of scale that are global. You have that, but less and less,” Dimon said.

It is an even blunter message from Dimon than he made in his most recent annual shareholder meeting in April, where he said “Europe has some serious issues to fix”, and urged European nations to “significantly reform their economies so they can grow”.

Source: FT

Today Pantheon Macroeconomics Chief China Economist Duncan Wrigley has been quoted in Bloomberg about the growing concern over deflation and the price wars that have plagued much of China's Economy.

We believe a key theme for H2 is China's policies to tackle deflation, until recently a subject of taboo, and something that has gone under the radar for many investors.

A meeting this month of the body in charge of Economic Policy "represents the strongest signal yet" of major policy shifts and something to keep a keen eye on.



UK companies in June experienced the most rapid decline in hiring in almost two years, according to a report by KPMG and REC. Additionally, McKinsey noted that businesses are reducing their recruitment efforts for positions that are expected to be transformed by AI.

UK companies are scaling back on hiring for positions that may be impacted by the introduction of artificial intelligence, as indicated by a recent study.

Job openings have decreased overall in the UK, with listings for roles anticipated to be notably transformed by AI falling by 38%, according to McKinsey & Co.

The expectation of future productivity improvements from AI is leading businesses to reassess their workforce strategies and temporarily halt certain recruitment efforts, stated Tera Allas, a senior adviser at McKinsey.

The biotechnology sector is undergoing a transformation led by Chinese pharmaceutical companies that are contesting the Western stronghold on innovation, as evidenced by the introduction of over 1,250 new drugs into development last year.

Chinese biotech advancements are gaining recognition from major Western pharmaceutical firms and regulatory bodies, with numerous Chinese medications receiving expedited reviews and being acquired by multinational corporations for unprecedented amounts.

Chinese biotech companies benefit from the ability to conduct research more affordably and swiftly, thanks to a vast patient population and a centralized hospital system. Many industry experts believe it is only a matter of time before a significant number of drugs developed in China receive approvals in the US and EU, leading to their widespread adoption in the Western market.

And with interest rates expected to be cut toward the end of 2025, it’s likely that yields across asset classes continue to decline.
The historical average Shiller P/E ratio is 17.3. It’s currently at 38.1.

Credit rating downgrades are becoming more frequent, with around $94 billion of high-grade US debt downgraded in the second quarter, according to JPMorgan Chase & Co. strategists.

AstraZeneca relocates its main listing to New York, and the UK should reduce the collateral impact by nurturing a successor, as noted by Chris Hughes. Additionally, the other focus should be on enhancing the IPO pipeline.

Google will spend $2.4 billion to acquire talent and licensing rights from Windsurf.

Goldman Sachs is testing an autonomous AI coder from Cognition Labs, marking Wall Street's first deployment of AI for full-stack development tasks. Separately, Goldman will require junior bankers to certify quarterly that they haven’t accepted private equity job offers as it seeks to stem attrition.

LG Electronics Inc. shares advanced in Seoul after a local media report that the company is developing cutting-edge tools for making memory chips that work alongside AI processors.

Nvidia closed above a $4T market cap for the first time, with growth fuelled by surging AI demand and dominance in chip supply. Separately, CEO Jensen Huang met President Trump at the White House yesterday.

Tesla plans to survey its shareholders regarding a potential investment in xAI, following a report from the WSJ that SpaceX intends to allocate $2 billion to the startup. Musk stated that any decision to back the startup ultimately isn’t his to make, and that Tesla's board and backers would need to green-light such a decision. Musk said "We will have a shareholder vote on the matter" in response to a post on X.

Bitcoin surged to an all-time high of $122,000 as investor confidence grew following its exit from a tight trading range. This change indicates a developing view of Bitcoin as a macro hedge and a fundamentally limited store of value. The true challenge for Bitcoin lies at $125,000, with the upward trend being propelled by robust demand from exchange-traded funds.


Bank of England Governor Andrew Bailey has cautioned the largest banks globally about the risks of issuing their own stablecoins.

Bailey expressed a preference for banks to provide digital representations of conventional currency, referred to as tokenized deposits, instead of stablecoins.

His apprehensions regarding stablecoins stem from the potential they have to withdraw money from the banking system, consequently reducing the funds available for lending.

In mainland China, cryptocurrencies remain banned. But stablecoins, or digital tokens pegged to traditional currencies, are starting to draw interest from local policymakers. As Hong Kong prepares to implement its stablecoin licensing rules on August 1, it is positioning itself as a test bed for what could become one of the most significant steps in creating a digital renminbi that circulates offshore.

A viable renminbi stablecoin, especially one issued offshore through regulated Hong Kong entities, has the potential to disrupt this entrenched dependence on the dollar. Counterparties anywhere could trade a digital token that represents a claim on renminbi, yet the underlying currency itself would remain in China, safeguarding Beijing’s capital controls.

Two Chinese groups stand to benefit most from such a shift. Ecommerce group JD.com and fintech Ant Group, lobbying to issue renminbi pegged stablecoins, stand to gain new revenue streams in transaction fees, reserve yield and settlement services.