Flash update – 'Liberation Day'
This article is approved for Financial Broker Use Only
Analysis by: Amber Gleeson, Investment Specialist, Aviva Investors
In measures President Trump billed as a way to ‘liberate’ the US economy and “make America wealthy again”, he announced a swathe of tariffs on nearly every country with which the US has a trade relationship.
- A universal baseline tariff of 10% will apply to imported goods into the US, effective April 5th
- Additional so-called “reciprocal” tariffs to nearly 60 countries (those with over a 10% trade deficit with the US), for example 34% in China and 20% in the EU. This will be effective April 9th
- The aggregate effective tariff in the US will rise to nearly 25%, a level not seen for over a century
- Countries are expected to try to negotiate with the US to bring down tariff rates, with the likelihood of success tied to the size of concessions they are willing to grant the US, as well as the administration’s personal preferences
How have markets reacted?
- Across the board, equity markets have fallen off the back of the news, with the S&P500, FTSE100 and Stoxx 600 down by 4.8%, 1.6%, 2.6% respectively.
- Government bonds rallied with US, European and UK 10-year government bond yields down by c. 5-10bps
- The dollar index weakened by 1.7%, which was its biggest daily decline since 2022 (This index reflects the value of the US dollar compared to a basket of major currencies)
- Despite some relief that the ‘event risk’ is out of the way, the debate around the magnitude of the impacts on inflation and growth will likely keep volatility elevated
How are we positioned in our multi-asset portfolios?
Underweight equities
- Underweight US equities: Given the uncertainty leading up to ‘Liberation Day’ and the potential inflation and growth impact of tariffs
- Underweight European equities: On the view that European stocks were overvalued following over optimism for a ceasefire in Ukraine, as well as the broader tariff outlook
Overweight government bonds - We increased our position in US Treasuries leading up to April 2nd, due to our view that US economic growth would slow more quickly than the market anticipated
- We maintained our overweight position in UK Government bonds due to the UK’s fiscal discipline and weak growth outlook, which may lead to more aggressive rate cuts than are currently expected by markets
Currencies: - We held an overweight position in the Euro versus an underweight position in the US dollar, anticipating challenges to US economic growth (and hence interest rates) as compared to Europe where fiscal expansionism may lead to longer term interest rates being higher than previously expected.
- This positioning has had a positive impact on the portfolios given the reaction of financial markets in recent days.
Market Volatility Supports NEW LINK NEEDED
Download - download Download
Lessons on the Benefits of Long Term Invsting
Key risks
Investment risk & currency risk
The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency and exchange rates. Investors may not get back the original amount invested.
Emerging market risk
Investments can be made in emerging markets. These markets may be volatile and carry higher risk than developed markets.
Derivatives risk
Investments can be made in derivatives, which can be complex and highly volatile. Derivatives may not perform as expected, meaning significant losses may be incurred.
Any companies or markets mentioned are for illustrative purposes only and not intended to be investment recommendations. For more information on the benefits and risks of investing please see our Your Investment Guide brochure.
Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (Aviva Investors). Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. This material is not a recommendation to sell or purchase any investment.
IMPORTANT INFORMATION The funds referred to in this document may be linked to an insurance-based investment product and the Key Information Document (KID) for this product is available at www.aviva.ie/kids/. The Risk Ratings of the funds referred to in this document differ from the corresponding Summary Risk Indicators shown in the KID.
Issued by Aviva Investors Global Services Limited, delegate of Aviva Investors Luxembourg for the ongoing management of the fund. Aviva Investors Luxembourg is the investment manager appointed by Aviva Life & Pensions Ireland DAC to manage the fund.
Authorised and regulated in Luxembourg by the Commission de Surveillance du Secteur Financier. Aviva Investors Global Services Limited, registered in England No. 1151805. Registered Office: 80 Fenchurch Street, London, EC3M 4AE, United Kingdom. Authorised and regulated by the Financial Conduct Authority and member of the Investment Management Association. Contact us at Aviva Investors Global Services Limited, 80 Fenchurch Street, London, EC3M 4AE, United Kingdom.