100 days in: Chaos, confusion and counting

The week kicked off on a slightly positive note for European equities on continued expectations that the disinflationary impact of Trump’s trade policies would allow the European Central Bank (ECB) to give ample support to the underlying economies. But sentiment was much less bullish for US equities, which saw an initial drop on rising inflation expectations for the US economy and worries that any Federal Reserve (Fed) support would be limited due to a heat-up in inflation dynamics. And indeed, we see all over the news and posts how the Chinese are reflecting almost all of their import costs onto their clients. Some think that the tariff impact will be temporary; some — including the Fed members — are starting to think that the impact could last longer than just a one-off jump in prices; while many continue to hope that Trump will have no choice but to dial back his tariffs — and the threats — as the rest of the world has shown much greater resilience to Trump’s attacks, with China in particular appearing ready to fight to the last dime.

The good news of the day is that it’s been a few days since we last heard fresh attacks by Trump. It feels like he’s been obliged to slow down the pace and intensity of his attacks. The bad news is, there is no clarity regarding the tariff situation, and the best outcome would be that the US keeps the 10% tariffs for everyone even if negotiations go well and lead to a favourable outcome. Anyway, for investor mood, three things matter:

1. No news from Trump is good news — it means that he and his government are softening their tone. Scott Bessent says that they are leaving China aside and concentrating on other negotiations for now, but there is a clear reluctance to further escalate the war on the Chinese front.
2. A dovish shift in Fed expectations would be more than welcome, even though the Fed can’t do much if inflation picks up momentum.
3. Earnings must live up to expectations and forecasts shouldn’t sound too gloomy.

Unfortunately, on that front, the news is not brilliant. Bloomberg’s Economics team warns that a 22% tariff model would lead to a 7% contraction of S&P 500 companies’ net income in 2025 versus the current estimate of 12% growth. Some say that a softer US dollar should support US company earnings, but tit-for-tat tariffs from the rest of the world could well eat into that margin. Nvidia, for example, fell 2% yesterday in a relatively calm session on news that China’s Huawei Technologies will test a new chip to replace its Nvidia chips.

100 days of chaos.

Today is Trump’s 100th day in office, and he will go down in history as the President who triggered the most unnecessary trade war in history. US consumer sentiment fell to one of the lowest reads on record, and long-term inflation expectations spiked to the highest since 1991. The US economy has certainly taken an unnecessary hit from tariff uncertainty, as GDP is expected to have dropped from 2.4% to 0.4% in just three months... The stock markets print their worst 100 days of a President since 1974 while the US dollar is losing its safe haven and reserve demand. Oh well...

Buy more Gold?

The dollar’s misery makes gold shine stronger than ever. The price of an ounce posted lower highs in the past three sessions, but not necessarily lower lows. Price dips could still be interesting opportunities to buy gold as risks persist, and central banks keep buying. But for those who missed the gold rally, silver — which lags behind by historical means — could be an interesting option, on expectation that the mint ratio would decline toward the 80/90 range without a significant downside correction in gold prices. Another interesting play for those who missed the gold rally is gold miners. The latter are seen as a "leveraged bet" on gold, as higher gold prices boost revenues, profits, and investor enthusiasm, leading to higher miner share prices — often by a larger multiple.

Gold, for example, rose around 42% between August last year and April this year, while Fresnillo rose more than 100% during the same period.

And for gold, the bulls remain strongly bullish based on the fact that the factors that pushed gold prices higher — the trade and geopolitical tensions, central bank and retail buying — remain intact. Some point that the latest gold rally — of just 40% — is far from 1979’s 120% rally.