Global equities reached new record levels in July on expectations of trade deals, easing of US tariff threats and hopes of a short-term boost to US growth from the One Big Beautiful Bill Act (OBBBA). This has happened despite US tariffs moving higher (when compared with before Trump came to power), indicating some complacency in risk assets. On the other hand, bond yields in the US, the UK, Europe, and Japan are reflecting concerns over debt sustainability.
We think that, with so much uncertainty over policies, any good news regarding the economy and decisions on tariffs, such as the one with Japan, is being welcomed by the markets. However, Trump’s transactional approach will persist even after agreements with trading partners are finalised. This policy uncertainty is perhaps most evident in the USD.
We outline below factors that could cause market turbulence this summer:
- OBBBA – short-term gain, long-term pain, and social consequences. In theory, the bill will likely boost consumption, investments and GDP growth in the short term, through front-loaded tax cuts. However, it would add more than $3 trillion to US debt over 10 years and is likely to hurt the income of the most vulnerable households when social spending cuts will take effect in October 2026. Secondly, cuts to Medicaid mean that people may set aside additional funds for emergencies, impacting their spending patterns. Finally, in addition to increasing the deficit, the bill is likely to put further upward pressure on long-term rates.
You can now read the full whitepaper at the link below
