The Quiet Before the Tariff Storm?

Trump’s 90-day tariff pause comes to an end next week, and markets are eerily quiet. If formal trade agreements are not secured in the next few days Trump’s reciprocal tariffs announced on ‘Liberation Day’ in early April, ranging from 11% to 50% will be reinstated on 9 July (or so Trump has claimed). So, is it the calm before the storm, or have investors priced in that ‘Trump Always Chickens Out’ (TACO)?

Given the amount of volatility around the last tariff announcement, with a c.10% drop in global equities following ‘Liberation Day’, you might think that the looming threat of their return would induce investors to take caution. Yet global equities have ticked up this week. Historically, markets have shown a pattern of initial volatility around Trump’s tariff announcements, only to settle as investors anticipate last-minute compromises or delays, reflecting the so-called TACO effect.

This is not to say there won’t be a reaction, but rather that the market seems to have accepted uncertainty as the norm. Simply put, no one can predict Trump’s next move and the market knows this, so until more details emerge on the 90-day tariff pause there is little point in reacting prematurely.

Recent US economic data supports this cautious optimism in markets. The US economy has remained surprisingly resilient despite ongoing trade tensions. For example the US economy added 147,000 jobs in June, significantly exceeding expectations. This strong jobs report from the Bureau of Labor Statistics released on Thursday, outshone economists’ predictions. It suggests that the US labour market has so far weathered the tariff impact better than many feared.

Our outlook on tariffs: As things stand, we expect a 14% effective tariff rate to stick. Trump needs the trade tariff revenue to help fund his ‘big, beautiful bill’, and to manage the US’ growing debt pile, so tariffs aren’t going to completely disappear. That said, we believe the larger reciprocal measures announced on ‘Liberation Day’ could still be scaled back on or around July 9. Although we note it’s all still to play for, and much could shift in the days ahead.

The key takeaway is not to overreact to tariff noise. Markets have largely priced in the unpredictability of Trump’s trade tactics. While some short-term volatility is possible if tariffs snap back on July 9, it’s important to maintain a long-term perspective. As stated above, we expect a moderate 14% effective tariff rate to remain, but not the harsher reciprocal measures, meaning the long-term investment outlook stays intact.


The Noise

• In the bond market this week UK gilts yields dipped then rebounded: UK government debt saw volatility this week amid political uncertainty and speculation over a possible Treasury reshuffle. However, confidence returned after the Prime Minister confirmed support for the Chancellor, helping lift gilt prices.

• In equity markets, US stocks hit new record highs on Thursday. This was largely due to optimism about a resilient economy and easing trade tensions. Recent economic data pointed to continued strength; consumer spending remained durable, jobless claims were lower than expected, and business activity showed steady momentum. This reinforced hopes that the US is heading for a soft-landing, where inflation is tamed without tipping the economy into recession.

• In commodity markets, Oil prices have steadied this week, holding around $68 per barrel. This calm follows a period of heightened volatility due to geopolitical tensions and fluctuating supply concerns.Now,investors are awaiting news from the Organisation of the Petroleum Exporting Countries (OPEC). OPEC is a group of major oil-producing nations that work together to decide how much oil to produce. If they increase production, oil prices usually fall because there’s more supply available. But if they keep production low or if other problems like conflicts or weather disrupt supply, prices can rise. Right now, traders are waiting to see what OPEC decides.