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Despite recent positive developments in U.S.-China trade relations, uncertainty persists, with tariffs remaining significantly higher than pre-conflict levels. UBS warns that inflationary pressures may rise as companies deplete inventories, and advocates for cautious investment strategies to navigate potential economic challenges.
UBS warns that despite recent tariff pauses, the Trump administration is preparing for targeted increases in sectors like pharmaceuticals, semiconductors, and critical minerals. These strategic tariffs could raise the U.S. effective tariff rate significantly, contributing to ongoing economic uncertainty and market volatility.
UBS has downgraded its outlook on US equities to 'neutral' from 'attractive' amid ongoing market volatility and uncertainty following recent tariff agreements between the US and China. Despite this, UBS maintains a full strategic allocation to US stocks, expecting equities to rise over the next year, particularly in sectors like communications, technology, healthcare, and utilities.The firm anticipates that upcoming legal challenges to the Trump administration's tariffs could lead to significant reductions, potentially lowering the effective US tariff rate to around 15-20% by year-end. If tariffs remain unchanged, the impact on the US economy could resemble a 2% VAT hike, affecting growth and prices without triggering a recession.
Deutsche Bank predicts a dollar bear market, forecasting the Euro and British Pound to strengthen against the Dollar, with targets of 1.30 for EUR/USD and 1.45 for GBP/USD. The shift in global fundamentals, including increased German spending, is expected to favor Eurozone assets, while the Pound may decline against the Euro due to relative growth dynamics. Pantheon Macroeconomics adjusts its forecasts, raising GBP/USD expectations while lowering GBP/EUR projections amid concerns over U.S. economic policies and Federal Reserve independence.
UBS and RBC Capital Markets have lowered their year-end 2025 targets for the S&P 500 due to recession fears stemming from new tariffs announced by President Trump. UBS revised its target to 5,800, citing a slower recovery and reduced earnings expectations, while RBC cut its target to 5,550, reflecting increased uncertainty in the earnings outlook. Both firms anticipate U.S. GDP growth to remain below 1% in 2025, with heightened risks of a recession impacting corporate earnings and market sentiment.
UBS has downgraded its outlook for the US stock market, lowering its S&P 500 target from 6400 to 5800 points due to Donald Trump's unexpected "reciprocal" tariffs. Earnings expectations for the index have also been cut, with a forecast of just $250 per share, indicating minimal growth. In a more optimistic scenario, the S&P 500 could reach 6500 points, while a downturn could see it fall to 4500 points amid geopolitical tensions and economic slowdown.
Morgan Stanley and UBS are at odds over Federal Reserve interest rate predictions amid rising stagflation concerns due to President Trump's tariffs. UBS anticipates up to four rate cuts this year, while Morgan Stanley believes the Fed will hold off on cuts until next year, highlighting the complex economic landscape. Market sentiment currently leans towards rate reductions, with traders betting on multiple cuts despite inflation worries.
Mark Haefele, chief investment officer at UBS Global Wealth Management, believes the Federal Reserve will need to cut interest rates aggressively, potentially four times this year, due to new tariffs from President Trump. In contrast, Michael Gapen, Morgan Stanley’s chief US economist, argues that the Fed should not cut rates at all, revising their predictions to suggest no reductions until next year.
UBS forecasts the Federal Reserve will cut interest rates by 75 to 100 basis points in 2025 due to newly imposed tariffs, which set a 10% base on most imports and significantly higher rates for select countries. The tariffs, particularly affecting goods from China (34%), the EU (20%), Japan (24%), and Switzerland (31%), could raise the effective tariff rate to around 25%, the highest since World War II, potentially slowing growth to near or below 1%. While there is a chance for easing negotiations, a prolonged tariff situation could deepen the economic slowdown, with a 30% probability of recession scenarios.
President Trump has announced new tariffs, including a 10% increase on all countries and specific measures against key trading partners like China and the EU, prompting threats of retaliation and negotiations. Analysts predict economic slowdowns and potential escalation, with the EU preparing countermeasures and the U.S. effective tariff rate expected to rise significantly. The situation remains fluid, with the possibility of further tariff increases if retaliatory actions occur.
Mark Haefele
People
The information provided herein is generated by experimental artificial intelligence and is for informational purposes only.
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