Last month was characterized by a messy US trade policy. Tariffs of 10% on all imports into the US were announced on April 2 and are currently being applied. Additional, sometimes steep, country-specific tariffs were announced for countries with a trade surplus calculated using an obscure formula. These were, however, suspended for 90 days before they came into force, with the exception of the exceptionally high tariffs against China. As a result, most countries are currently in negotiations with the United States to reach a trade agreement. The tariff announcements led to a sharp rise in imports to the US, which until then had been duty-free or subject to lower tariffs. Ironically, the US President's recent comments that the tariffs of 145% on Chinese goods would remain “nowhere near” this level and “fall significantly” could even lead to a decline in economic activity. This would be the case if consumption and investment were postponed until the tariffs actually fall - a behavior that is usually observed in deflationary times. The consumer sentiment survey conducted by the University of Michigan has been in free fall since the beginning of the year and saw its third-lowest value ever in April. Companies are adopting various strategies to deal with the trade tariffs. Apple, for example, is planning to manufacture its iPhones for the US market in India from as early as next year, where production capacity has been steadily increased in recent years. The Chinese company Temu, on the other hand, is passing on most of the customs costs to end customers in the USA, with the result that the import duties sometimes even exceed the value of the product. Which strategy will ultimately be the right one is hard to say. What is certain, however, is that uncertainty has increased significantly in April for both companies and consumers. Typically, such phases are detrimental to growth if they last for a longer period of time.
Stock markets around the world reacted to the tariff announcements from the US with heavy losses, but recovered most of their losses towards the end of the month. With the trade war in full swing, it is not surprising that US and Chinese equities underperformed most other developed markets. In the determination of prices, tariffs act like taxes and lead to higher prices for consumers. However, the additional charge does not benefit companies, but has to be paid to the state. Consumers therefore have a lower disposable income, while companies are able to generate less revenue due to the higher prices. The fact that there is no clarity regarding the country-specific US tariffs and therefore a great deal of planning uncertainty for companies makes the situation even more difficult and is likely to have a corresponding economic impact - even in the event that the tariffs should ultimately only serve to finance other tax cuts. This, in combination with the still high valuation level in the USA, makes us cautious and we assume that the developed markets excluding the USA will continue to perform better in the foreseeable future. This is of course subject to no radical change in the tariff or tax situation.
While interest rates fell slightly in many countries, the US interest rate market saw an increase in interest rates. This was particularly accentuated at the long end of the yield curve. The Swiss franc once again lived up to its role as a safe haven - it appreciated against all major currencies and even gained more than 7% against the US dollar. Gold also once again proved to be a valuable diversification with a monthly return of +5.3% in USD. Political developments also played an important role here. It was not the first time that the US President showed himself to be interventionist in April, making several comments in an attempt to influence the Fed's interest rate policy. His rhetoric is also likely to have had a significant influence on the recent elections in Canada. Assuming that such behavior continues in the future, this could permanently change investors' view of some segments of the bond market and the US dollar. Trends such as a weaker US dollar, a rising gold price or higher US interest rates for long-term government bonds could continue under this premise. It could put further pressure on the strained US government budget and at the same time further increase the already high interest payments.
Until recently, the majority of investors assumed that the current US government would pursue a pro-business course. The prevailing opinion was also based on the assumption that anything that could harm the stock market would be avoided and that countermeasures would be taken if necessary - the so-called “Trump Put”. We were always sceptical about this and stuck to our principles of solid diversification, a focus on the Swiss franc and a reasonable allocation to alternative investments such as gold. And that has paid off. In the wake of the market turmoil at the beginning of the month, we unwound some of our hedges and were thus able to benefit more from the subsequent recovery. Nevertheless, we remain cautious. We are underweighted in US equities in favor of other developed markets. In view of the prevailing stagflationary risks abroad, we are currently mainly invested in corporate bonds denominated in Swiss francs and are maintaining our allocation to gold.