February - A month of war (commercial / of words / on the battlefield)
Data source : Bloomberg
February started on a strong note for US financial markets, with an upward trend driven by strong earnings reports and investor optimism about the global economic outlook (principally US). It seemed like the US was prepared for another solid quarter, but that quickly shifted towards the end of February. A correction, caused by concerns over US trade policies, particularly the tariffs that the Trump administration was preparing to impose, led to a negative performance for the month.
In a move that caught global attention, reports surfaced that the US President Trump was set to impose a 25% tariff on automobiles, semiconductors, and pharmaceuticals starting at the beginning of April. Originally targeting steel and aluminum, this new escalation in trade tensions broadened the scope of the US-China trade war and placed major exporters such as EU, Japan, South Korea, and Mexico directly in the line of fire. The automotive sector, already vulnerable due to its exposure to international markets, seemed poised to take a direct hit. Companies like Toyota, Volkswagen, and Hyundai, which have significant sales in the US, could face severe consequences from these new tariffs. The semiconductor industry also stood to suffer, as this sector was already dealing with geopolitical headwinds. These new tariffs could further disrupt already fragile supply chains, adding to the uncertainty.
Meanwhile, Europe scrambled to engage in last chance negotiations, as retaliation plans began to take shape. The real question, however, remained whether these tariffs were merely a bargaining chip or the start of a deeper realignment in global trade. The response was quick, with the EU pushing back against any unilateral trade actions, stressing that any concessions from their side must be fair and reciprocal. The tariff on EU-made automobiles threatened to harm German manufacturers most significantly, at a time when they are already in a difficult position, further intensifying tensions. While the EU remained open to cooperation, including increasing liquified natural gas imports and potential arms purchases, it remained to be seen whether this would be enough to stave off a major commercial clash.
Those geopolitical events led to an urgency of rearmament and upgrade of self-sufficiency and self-defense capabilities of the EU. Because of that the European stock market strongly outperformed the rest of the world, on the back of a looming peace deal, which now seems to have shattered.
Our summary recommendations
President Trump’s rhetoric justifies our positioning in semi-liquid assets that tend to be decorrelated and much less volatile, such as Private Credit, Private Infrastructure, Private Equity and Trade Finance. Moreover, we take advantage of short spikes in volatility to issue new structured products with downside protection.
Chart of the month
Since the beginning of February, the worldwide geopolitical tensions keep increasing because of Donald Trump’s announcements. As shown in the graph, a particular sector benefiting from this rhetoric is the aerospace and defense sector (Blue line) at +9.6% so far this year, vs the S&P500 (Black line) close to 1%. On the 21st of February, following Trump’s announcement that he would reduce military aid to Europe and NATO, the S&P500 and the defense index took two distinct paths, as expectations of European rearmament seem inevitable.
Source: Bloomberg
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