Markets have been on a roller-coaster ride over the past couple of months, and it's difficult to escape the sensation that it's Trump's world and we're just living in it.
His deals and pronouncements from his perch in the White House have made markets rise and fall. US Treasury markets have moved as the President threatened to fire Fed chair Jerome Powell, then passed his “big beautiful bill" (basically a tax reform), which threatened to blow the top off US debt.
There were, of course, dozens of announcements on tariffs, on a vast range of products and countries and for a variety of reasons. These, in turn, threaten to impact the prices of imported goods sold in the USA and, ultimately, inflation.
Stock markets were not immune to Trump's actions. In the US, hopes for additional rate cuts in 2025 have given stocks a boost, pushing them to new highs in mid-August. Risk-on was the flavour of the time before some doubts emerged about the capacity of AI to generate profits anytime in the near future.
Deals with good impacts in some markets
In Japan, the trade agreement with the US allowed the stock market to rebound after a few difficult months.
The same applied to South Korea, which reached a trade deal with the US, bringing tariffs down to 15%.
Elsewhere, Indonesia has had a good month. Cuts in interest rates, economic stimulus and a trade deal with the USA have allowed Indonesian stocks to stage a comeback after a few difficult months.
When appeasement is key
The European Union was less happy about the agreement obtained, which revealed Europe’s weakness at the negotiation table.
Ultimately, the agreement leaves a large number of European sectors with reduced competitiveness in the US market. Furthermore, after a defensive-driven rally in Europe, it’s become quite evident that the way to appease Trump's ire is to purchase American weaponry and other defence products. Even European countries that are determined to increase massively are likely to send much of that expenditure to the USA.
Tariffs were also political
It's hard to ignore the threat of a 50% tariff on Brazilian goods (based on the treatment of former President Jair Bolsonaro) and the threat to India (for continued purchases of Russian oil).
On the China front, Trump has been far more patient, delaying the introduction of new tariffs - once again for a new period of 90 days - as the two major powers keep negotiating a new trade truce. Clearly, China has far more leverage in trade negotiations than any of the other US trading partners.
Euro’s relative strength
The euro has remained strong in the foreign exchange (forex) markets, gaining ground against several other currencies. On the upside, euro strength has contributed to limiting inflation, which is now at the ECB's target of 2%.
On the downside, currencies such as the US dollar and the Japanese yen have lost 5%-10% against the euro over the past year. That in turn means that European products have become less competitive vis-à-vis some of their main competitors. Not good news for a continent whose private demand remains weak.
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