Moment of clarity
– Risk assets rallied in July as trade uncertainty eased, despite a continued rise in the effective tariff rate.
– With policy uncertainty fading, market attention is shifting to economic data. Friday’s employment report underscores that the economic consequences of recent policy shifts are only now becoming visible.
UBS Knowledge Network Cross-Asset Volatility Risk. Edge. Positioning. Flows. Performance.
Portfolio concentration refers to the extent to which a portfolio is invested in a limited number of assets, sectors, markets, or asset classes. While higher concentration typically increases portfolio risk, it does not necessarily lead to higher returns; in fact, returns are often lower.
The US administration is poised to announce a new round of “reciprocal” tariffs on 2 April after imposing a range of tariffs on China, Mexico, and Canada, a separate set of tariffs on steel, aluminum, and derivative products, and newly announced levies on autos and auto parts.
• Gold prices rallied just shy of 10% in March, surpassing USD 3,100/oz to extend the year-to-date gains to 19% (after rising 27% in 2024).
• A surge in investment demand is behind the latest moves, with comments by US President Donald Trump and Elon Musk, as well as weak US consumer survey data, amplifying market fears as we approach the 2 April tariff announcements. The acceleration of ETF buying marks a sharp reversal from the outflows of this time last year.
While the Trump administration's policies may weigh on some areas of the sustainable investing universe, opportunities with strong commercial economics still exist.
We anticipate further volatility amid tariff concerns, but we continue to expect gains for the S&P 500 and see the index reaching 6,600 by year-end. We believe a solid US economy, healthy corporate earnings growth, and further advancements in AI should support the rally. We also see opportunities in Asian ex-Japan equities, including those in Taiwan and India. In Europe, we like structured strategies on German equities.
US Treasury yields have been on a rollercoaster this year. But we expect the appeal of borrowing strategies to rise as the global rate-cutting cycle continues. Borrowing can form part of a financial plan, subject to awareness of its risks.
Diplomatic efforts have intensified to stop the fighting between both Russia and Ukraine as well as Israel and Hamas. But a durable resolution to both conflicts will not be easy to achieve. The public disagreement in the White House between President Trump and his Ukrainian counterpart underlined the challenges.
We do not expect large, broad, and sustained US tariffs, but repeated threats of higher tariffs on key trading partners and a lack of policy visibility could weigh on business investment and hiring even if they are never imposed. More volatile markets require an increased focus on portfolio diversification and hedging approaches.
Germany’s chancellor-in-waiting Friedrich Merz announced plans for a major increase in defense and infrastructure spending. If passed by the German parliament, the plans would mark a significant fiscal shift that has the potential to boost growth and support Eurozone assets.
• Fresh tariff concerns last week gave the USD renewed support. US data, however, are dimming the near-term economic growth outlook. This combination poses headwinds for pro-growth currencies, in our view.
• A potential ceasefire in Ukraine, greater fiscal spending in Europe, and country-specific factors should continue to shape European currencies, but clarity on these drivers still remain scarce.
• As we had expected, the EURGBP spike in January—which was sparked by UK-idiosyncratic risks—has reversed, and we expect the pair to edge lower over the year toward 0.82.
