Protection against protectionism

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Trade concerns justify a neutral stance on risk assets.

The global trade conflict intensified last week. The EU prepared to retaliate against new US tariffs on up to USD 350bn of auto imports, and President Trump said he was willing to levy duties on all the goods the US imports from China, valued at USD 500bn a year. This adds weight to our base case that US action will provoke a fresh round of tit-for-tat tariff increases from China and the EU. While we don't expect trade tensions to end the global economic upswing, we believe markets are not sufficiently pricing the dispute's potential to hit business investment and hiring: US stocks are up by around 5% and global equities by 2% since the end of May. As a result, we cut our tactical overweight to global equities.