01.06.25 - Mounting Uncertainties

Legal, economic, and political uncertainties are intensifying under President Trump.

Just one day after accusing China of violating a key trade agreement, Trump announced a doubling of tariffs on imported steel and aluminum, from 25% to 50%, effective June 4.

Tariffs continue to dominate headlines, with hardly a week passing without a new development. This week, the issue moved into the courts. Legal challenges now question the legitimacy of reciprocal tariffs and whether the authority to impose them lies with the President or Congress. Both parties have until June 9 to present their arguments.

At the same time, June will be pivotal for global monetary policy. Decisions are due from the ECB, the Federal Reserve, and the Bank of Japan. Meanwhile, the Swiss National Bank could surprise markets with a reintroduction of negative interest rates.

Inflation remains persistently high in both Europe and the US, and new tariffs may add further upward pressure.

Markets: Weekend futures across Asia, Europe, and the US are pointing lower. Cryptos are also trading lower, suggesting a weak opening to the new trading week.

My view: Markets are navigating a sea of uncertainties. Yet, despite escalating trade tensions and a steady stream of negative news, investor sentiment remains remarkably upbeat. The market continues to shrug off potential downside risks, especially on the tariff front.

A key reason: many investors are still betting on the so-called “TACO” trade - ”Trump Always Chickens Out”. This strategy is built on the assumption that Trump may posture aggressively but ultimately softens or reverses his stance. That belief helped fuel one of the strongest months for US equities in May, the best since November 2023.

I chose not to follow that speculative crowd. From my perspective, the economic impact of recent policy decisions is already more severe than markets are pricing in. Valuations appear increasingly stretched. The real question is: what will break the current euphoric mood? And how long will speculators continue to chase elevated valuations in the face of mounting structural risks?

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