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Bank stocks experienced significant declines following President Trump's unexpected announcement of tariffs affecting over 180 countries. Major banks like JPMorgan Chase, Wells Fargo, and Citigroup saw drops of 5.5%, 7.4%, and over 10%, respectively.The potential economic impact of these tariffs raises concerns about consumer spending, loan growth, and rising loan losses, particularly as inflation remains high. Investors are advised to monitor the situation closely but not to panic sell, especially if their holdings are in financially sound institutions.
UBS analysts estimate that the new U.S. tariff policy could impose a $700 billion burden on consumers, equating to about 10% of annual retail sales and potentially leading to a 2% reduction in GDP. While the tariffs may prompt negotiations for reductions, the immediate demand destruction is significant, affecting all industrial sectors. Companies like OTIS and ESAB may fare better due to their international revenue structures, but no firm is immune to the broader economic risks posed by these tariffs.
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.
Gulf Cooperation Council (GCC) nations face a 10% US tariff under new trade policies, impacting sectors like aluminum and petrochemicals, while oil exports remain exempt. Regional equity markets reacted negatively, with declines in most GCC indices, except Qatar, which saw gains. Analysts warn of rising costs and supply chain disruptions, urging GCC businesses to diversify trade relationships and strengthen compliance to mitigate risks.
UBS forecasts that the Reserve Bank of New Zealand (RBNZ) may implement a significant 50 basis point rate cut in April, driven by the adverse effects of U.S. tariffs on global growth. The bank suggests a terminal rate of 3.0%, potentially dipping below the neutral rate due to economic slack.While initially expecting a gradual approach with 25 basis point cuts, UBS now sees the need for a more aggressive stance as the tariffs pose downside risks. RBNZ officials have acknowledged the detrimental impact of tariffs on growth, with potential inflationary effects in the long term.
Emerging market equities are at risk due to newly proposed U.S. tariffs, which could raise average tariffs on imports to 24% by 2024, the highest since the 1920s. UBS warns that these tariffs, not yet priced into the market, may lead to downward revisions in expected earnings growth for the MSCI Emerging Markets Index, as 13% of its revenue comes from the U.S. and now faces a 35% tariff. The firm highlights potential impacts on global trade and economic growth, with emerging market currencies likely to weaken against the U.S. dollar.
UBS forecasts that the Reserve Bank of New Zealand (RBNZ) may implement a significant 50 basis point rate cut at its April meeting due to the adverse effects of US tariffs on global growth. This aggressive move could lower rates to 3.0%, potentially dipping below the neutral rate amid economic downturns. The RBNZ's proactive stance contrasts with other central banks, as it navigates the complexities of tariffs that could lead to disinflation in New Zealand while impacting inflation dynamics.
US tariffs announced by President Trump could raise the average tariff on imports to 24% by 2024, impacting global equity valuations and emerging market currencies. UBS warns that emerging market stocks, particularly vulnerable due to their reliance on US exports, may see downward revisions in earnings growth amid a slowing economy. The MSCI Emerging Markets Index faces significant risks as these tariffs are not yet reflected in market prices.
UBS analysts have set a near-term target of 5300 for the S&P 500 but caution that ongoing tariff uncertainties could push the index below 5000. Proposed tariffs may raise average U.S. import tariffs significantly, potentially leading to a 1.5-2% decline in real GDP by 2025 and inflation nearing 5%. Despite strong investor flows into equities, risks from slowing growth and rising credit spreads could pressure stock valuations, with a bear market becoming increasingly probable if tariff negotiations falter.
UBS has set a short-term target of 5300 for the S&P 500 but cautions that ongoing tariff uncertainties could push the index below 5000. Proposed tariffs may significantly impact GDP and inflation, while strong investor flows into equities continue despite potential downside risks from economic slowdowns and credit spread widening. The firm warns that persistent tariff issues could increase the likelihood of a bear market for US equities.
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