After weeks of escalating tensions, the US and China have agreed to a 90-day suspension of most tariffs imposed since early April. This de-escalation is a welcome development. It removes some of the tail risks we were monitoring—particularly the risk of a US recession triggered by a collapse in global trade flows.
But in our view it is more a pause than a strategic shift. The structural tensions—technology, industrial policy, and geopolitical rivalry—remain firmly in place. So while markets may breathe a little easier in the short term, the underlying conflict is not yet resolved.
Given this temporary easing, how are we adjusting our macroeconomic scenario?
You're absolutely right.
Our baseline scenario remains largely unchanged. If the UK deal is any guide, the 10% across-the-board tariff on all US imports is likely to stay, while reciprocal tariffs and sector-specific measures, particularly for the automobile, pharmaceutical and other strategic sectors, will be treated with a more transactional approach. Because the UK have a trade deficit with the US, the UK deal is also likely to be better than what other countries will be able to negotiate with the US.
We continue to believe that a high level of tariffs on most Chinese goods is the most likely scenario once the 90-day window closes.
More specifically, the upside risk to inflation has slightly decreased. We expect CPI inflation to rise slightly above 3.5% in the US, and the impact of tariffs on inflation to be largely transitory.
As you mentioned, recession risks have declined, but uncertainties will remain elevated. We don’t expect a rapid shift in consumer and business confidence, and US activity is still likely to slow in coming quarters. Lower tariffs will however limit the negative hit to domestic private demand.
For the Federal Reserve, this scenario means less urgency to cut rates aggressively this year, but more latitude for 2026 due to lower inflationary pressures.
So, in light of this, how are we positioning our asset allocation?
We remain prudent. The temporary truce reduces volatility in the short term, but the medium-term outlook is still clouded by uncertainty. First US and China reached a temporary truce but not a deal. Secondly, household and compagnies massively increased their imports of consumer goods, their inventories and their investment in capital goods, in anticipation of the tariff hikes.
In the second and third quarter, this front-loading effect will likely reverse, and we can not exclude future disappointment on US economic data. This could weigh on markets in the medium term, before positive news on US fiscal stimulus expected by the end of the summer will once again benefit the economy and financial markets.
These developments underline the importance of diversifying into assets such as gold, the Swiss franc, or funds of hedge funds. After lowering our equity exposure, we increased the alternative pocket further through fund of hedge funds. As a result of the asymmetric return profiles, this position should contribute to mitigate downside risks linked with stagflation fears, while participating in the equity market rally.
