Trade dispute: Stuck between escalation and deal making
The US deadline of 9 July for 90 trade deals is here, yet only two trading partners – the UK and Vietnam – have apparently agreed to deals, while negotiations with the remaining countries are ongoing with uncertain progress. The main reason to expect a notable escalation in the trade dispute from President Trump is the slow progress of negotiations with important trading partners like China and the European Union, which may lead to a deal in a second step. Businesses, consumers, and financial markets seem to be looking away from or through the risk of a possible escalation.
The One Big Beautiful Bill Act: Economic and fiscal impact
Economically, the bill will not materially boost growth but rather help to avoid a fiscal cliff, as overall fiscal deficits are expected to remain in the elevated 6% range throughout the coming years. Only expanding deficits deliver a positive fiscal impulse. As such, unsurprisingly, fiscal concerns are not going to disappear anytime soon and will remain present, given the continuously high deficits and the substantial interest burden that comes with the debt stock and higher rates.
Earnings season will provide a pulse check on how companies are navigating an increasingly complex policy landscape
Earnings growth for the S&P 500 Index is now forecast at 5.9%, down from nearly 10% three months ago, while estimates for the Stoxx 600 Index have dropped from around 8% to just 1.2%. The primary culprits behind these downward revisions are commodity-related sectors –most notably oil & gas and materials – as well as cyclicals such as consumer cyclicals and industrials, which are particularly exposed to the tariffs.
Despite this muted backdrop, the overall set-up appears more favourable from an earnings perspective. Lowered expectations reduce the bar for positive surprises, particularly in sectors with more resilient pricing power or cost controls. Once again, the bulk of the expected earnings growth is concentrated in technology – especially among the ‘Big Tech’ names. Consensus still assumes that the disparity between information technology and the broader market will narrow by Q2 2026, suggesting a broadening out of market breadth.
Looking ahead, investor focus will centre on corporate guidance and the extent to which companies can manage tariff-related cost pressures. According to a recent Fed survey, firms anticipate absorbing about half the tariff burden, while Goldman Sachs expects just 30% to be absorbed, with the remainder passed on to consumers. Importantly, many companies also appear to have built up inventories ahead of the tariff roll out, which could serve as a buffer for margins in the near term.
Currencies: USD lower; CHF intervention risks
Until last week, the USD continued its downward trajectory, with the US Dollar Index slipping below 97 to its lowest level since February 2022. This weakening was not data-driven, but rather occurred as a result of the continued diversification out of US assets through to the end of Q2, which resulted in USD underperformance of more than -7%. With the ‘One Big Beautiful Act’ passing Congress, the Trump administration has cemented high budget deficits and an unsustainable debt trajectory.
These fiscal policy risks are unlikely to restore investor confidence in US assets. We believe the latest leg down of the USD is fully in line with our long-term forecast for further broad-based USD weakness. On the safe-haven front, the CHF remains the main beneficiary of USD weakness. However, the pressure on the SNB to intervene has clearly risen. A trade deal with the US this week could provide some leeway, however, the SNB has been reluctant to intervene thus far to avoid allegations of currency manipulation interfering with trade negotiations.
Find out more about the current investment environment in our Market Outlook Mid-Year 2025.