Trump’s tariff tightrope

• Gold advanced +2.3% in dollar terms
• Brent crude oil added +0.6% amidst geopolitical uncertainty and oversupply concerns in dollar terms

• Most equity markets slid with Europe (-2.1%) and the UK (-1.4%) worst in local currency terms

A key pillar of President Trump’s economic policy has been temporarily derailed after being ruled unlawful. The US Court of Appeals for the Federal Circuit (CAFC) rejected Trump’s use of executive powers – usually reserved for economic emergencies such as sanctions and freezing criminal assets – to invoke tariffs. As the US Supreme Court has stayed the CAFC’s decision pending appeal, tariffs will remain in force until a legal resolution is reached, probably not before January 2026. Whether tariffs will be rebated - and how fast - will be a big clearing event for investors. Trump’s team will contest the CAFC’s ruling on several fronts, including:

1.    that reversing tariffs will endanger trillions of dollars of potential inward investment from sovereign governments; and
2.    any reversal would cause further economic harm by worsening the US’s fiscal position after several tax breaks were recently made permanent. 

Trump has threatened tariffs to force foreign policy changes. Governments which have entered into bilateral trade deals with the US – perhaps under perceived duress – will therefore face a quandary. How to proceed if tariffs are eventually ruled unlawful? There are other routes to legitimise tariffs even if the Supreme Court sides with the CAFC. Trump has a Plan B. For now, investors move from uncertainty to – well – yet more uncertainty.

US inflation data delivered no major surprises last week, reinforcing investors’ expectations that the Federal Reserve (Fed) will cut interest rates on 17 September. The Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, which excludes volatile components like food and energy, rose 0.3% in July in line with expectations. On an annualised basis inflation remains above the Fed’s 2% target, rising to 2.9% from 2.8% in June. 

Despite this, President Trump continues to publicly lambast the Fed’s policymakers for keeping rates unchanged. Trump’s criticism and politicisation of the Fed’s execution of its mandate poses a key question: would inflation be kept under control in future if Trump succeeds in installing perceived political stooges to the Fed who vote to appease him? If this comes to pass, investors may demand an additional risk premium in order to be compensated for ‘inflation uncertainty’.

In other US news, the second estimate of Gross Domestic Product (GDP) for the second quarter of 2025 showed further signs of robustness. The nation’s output of goods and services is estimated to have risen by 3.3%, beating previous estimates of a 3% rise.

Fears that France's minority government could collapse hit French bonds and stocks last week. French PM Francois Bayrou has called a confidence vote on 8 September to push through sweeping budget cuts, but the main opposition parties have refused to support him.

The benchmark 10-year French government bond yield spiked at 3.53% on Wednesday, its highest level since March, before easing to finish the week at 3.51%. (When a bond’s price falls, its yield rises.) The yield-spread over 10-year German Bunds has widened to 0.79%, the largest since April, meaning risk-averse investors are demanding a yet higher return for lending to France. French stocks also fell, with the CAC 40 down -3.3% for the week. Banks were hardest hit as BNP Paribas and Société Générale slid -7.8% and -8.8% respectively, as banks are particularly sensitive to fiscal uncertainty. 

Bond markets remain fragile. Investors are nervous about whether heavily-indebted economies like France can exercise fiscal constraint and credibly rein-in government spending.

NVIDIA’s revenues for the second quarter of the year beat consensus last week but were slightly softer than some analysts had hoped. At $46.7bn versus $46.5bn, the high-end chip designer’s beat was modest - albeit the absolute number huge. Notably, management continue to position any opportunity in China as a kicker rather than mainstay of its business model and future revenues. Looking ahead, CEO Jensen Huang suggested that AI-infrastructure spending could top $3-$4trn by the end of the decade. Recently NVIDIA became the world’s first publicly listed company to surpass a $4trn valuation. It’s so large it comprises around 8% of the entire market capitalisation of the S&P500.

• US durable goods: July orders fell -2.8%, better than the -4% expected and the second monthly decline in a row. Transportation was the main drag, with Boeing shouldering much of the fall, recording 31 new jet orders vs 116 in June
• India’s US tariff: the 50% US export tariff took effect on Wednesday, consisting of a 25% penalty for the purchase of Russian oil on top of a previously imposed 25% levy. Trade with the US, its largest export market, faces significant strain
• Russia: the 2025 economic growth (GDP) forecast was cut to 1.5% from 2.5%, as high interest rates to curb inflation continue to suppress lending and growth
• Denmark: 2025 economic growth (GDP) was downgraded to 1.4% from 3%, citing pharmaceutical giant Novo Nordisk’s outlook amid weight-loss products competition and US tariffs on Danish exports
• UK car exports to US: July sales to the US rose +6.8% after three months of decline, boosted by the new UK-US tariff deal according to the Society of Motor Manufacturers and Traders
• US stocks: The Dow Jones Industrial Average and S&P 500 indices hit record highs this week before easing Friday, with the S&P crossing the 6,500 level
• SCO summit: Presidents Xi, Putin and Modi will meet in China this week with leaders from 20+ nations at the Shanghai Cooperation Organisation summit to discuss security, military, economic and cultural cooperation

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