The August Markets Minute

Trump’s Tariff Shock

Global markets are in search of stability at the beginning of August as President Trump’s sweeping new tariff regime takes effect. Tariffs of up to 50% on imports from major trading partners, including India, Canada, and Brazil, have reignited fears of a global trade war.

While some EU sectors secured partial relief, other members of the bloc remain exposed to elevated levies on metals and industrial goods. Tensions over Russian oil, BRICS alignment, and Gaza’s humanitarian crisis have further complicated the geopolitical landscape. Investors can expect continued markets volatility as diplomatic negotiations unfold.

Equities and Bond Markets

Global equities remain buoyant but fragile in the opening days of August. US indices like the S&P 500 and Nasdaq have rebounded from April’s tariff-induced slump, driven mostly by strong earnings from tech companies like Microsoft, NVIDIA and Meta. However, valuations are slightly stretched stateside, and growth stocks are also currently trading at a premium.

In terms of European equities, they posted modest gains during the month of July, supported by fiscal stimulus, but lost some ground to their US equivalent as investors saw reason to re-enter US companies as confidence grows around US interest rate cuts.

Both US and EU government bond yields have risen, reflecting investor caution while Corporate bond spreads, especially in the US, have widened sharply in response to tariff risks and deteriorating sentiment.

Dollar vs Euro and Interest Rate Outlook

The dollar’s recent strengthening against the Euro, climbing to 1.15 amid growing expectations of Fed rate cuts, may be short-lived, with structural risks and fiscal pressures weighing on its medium-term outlook.

As the ECB holds its interest rates steady, supported by stabilising inflation and cautious optimism across the Eurozone, weak US jobs data during the month of July and political pressure on the Fed have fuelled speculation that a number of rate cuts will be granted before year-end.

Robert Smith is a Portfolio Manager at Compass Private Wealth with offices in Dublin and Cork.

Disclaimer: The above is generic in nature and does not constitute financial advice.