Monthly Investment Briefing: The US-EU Trade Deal

Less TACO more MOLE…

July has been a pivotal month for global trade. The EU managed to clinch a trade deal with the US just in time to avoid President Trump’s fast-approaching, yet elusive tariff deadline. The US-EU trade agreement negotiated between Trump and the European Commissioner from Belgium, Ursula Von Der Leyen, smelled less like TACOs and more like its chocolatey counterpart MOLE – MAGA Overwhelms Leyen’s Europe.

Considering the President ran his election campaign on a promise to lower inflation, it will be interesting to see how the US public responds to an increase in prices across the board.

In summary…

The EU has accepted a 15% tariff rate on all exports to the US, a significant increase from the effective rate of 1.47% prior to President Trump’s inauguration, and meanwhile the US face no such barriers exporting to the EU. The consensus on this trade deal is geopolitical capitulation from the EU. However, a closer look suggests the deal might not be as damaging as it initially appears, as most of the spending commitments made by the EU were either already planned or are difficult for the US to enforce.

The self-styled “tariff man”…

US companies have attempted to mitigate some of the initial tariff shock by stockpiling imports ahead of the deadline, but this has only delayed the inevitable. While the extent to which tariffs will drive inflation in the US remains uncertain, their broad-based nature ensures that the average US consumer will feel an impact to some degree.

To the self-titled “tariff man” every geopolitical challenge looks like a nail waiting to be hit with a hammer. This is evident in President Trump’s recent disputes with the leaders of Brazil and India. Considering the President ran his election campaign on a promise to lower inflation, it will be interesting to see how the US public responds to an increase in prices across the board. This is bound to cause an initial shock for many business owners, even as the tariffs create the intended goal of moving manufacturing back to US soil. It is hard to predict how long this shift will last.

Overall…

Markets in the US and EU reacted positively to the trade agreement with the S&P 500 and the European STOXX 50 rising as uncertainty around the trade deal fell, and concerns about a standoff akin to the US-China trade talks did not escalate into something more severe.

Portfolio activity…

Managing our portfolios, we trimmed back some of the quality growth names, such as Polar Capital Technology (PCT), which we picked up at depressed levels following the ‘liberation day’ tariff news. We held it for a sizeable 50% gain before partially locking in profits. Considering the exceptional run in the stock market since April, we have decided to sell out of Trium Sustainable Leaders Fund to raise some cash from Alternatives, giving us the manoeuvrability to buy into quality equities should an opportunity arise from a market pullback.

Outlook…

We continue to remain balanced within portfolios and have recently raised slightly more cash than usual to reflect the higher valuations of the market, as well as the recently diminishing quality of economic data. It is still not abundantly clear how much the tariff impact is affecting corporate numbers, with the recent company earnings largely beating analyst estimates. However, with many orders brought forward before the deadline, we could still see this play out over the next few quarters, with profit warnings already being muted amongst earning announcements. We will be ready to react to any opportunities this brings us.

Nicolas Giraldo-Betney-Junior Investment Manager