Alex Wolf: «The Dollar Has Been the Biggest Variable»
Following the US announcement of reciprocal tariffs on the so-called «Liberation Day», there is expected to be a seismic impact on trade. This will have major implications on financial markets, most notably the US dollar, according to J.P. Morgan Private Bank’s Alex Wolf.
US President Donald Trump announced the widely anticipated reciprocal tariffs with a baseline rate of 10 percent on top of country-specific rates that result in import duties as high as 50 percent. Markets have been reacting to the new trade landscape and according to a J.P. Morgan Private Bank investment note, the US dollar has been the «biggest variable» and it has «defied consensus».
«Tariffs are initially strengthening the dollar against growth-oriented currencies (CNH, MXN, AUD), but the broad dollar is flat overall,» commented Alex Wolf, head of Asia investment strategy at the American private bank.
«Given the global nature of this trade war, the expected outsized shock on US GDP, and the overweight position in US asset among global investors, outflows may still potentially weaken the dollar. The balance of risks around trade flows pushing dollar higher and capital flows pushing dollar lower keeps the outlook neutral in our view.»
China Impact
In Asia, China is notably facing a total tariff of 54 percent due to the existing 20 percent rate. While this is expected to hit US export-oriented sales, Wolf believes the impact may be mitigated by increased fiscal support for the domestic economy and a weaker renminbi.
«Earnings for major internet platforms are unlikely to be significantly affected by US tariffs, but they will be impacted by a weaker currency. We continue to view Chinese equities as fairly valued at current levels, and underpricing the tariff impact,» he said.
Japan and India
On Japan, Wolf predicts that the 24 percent rate will be absorbed by price increases, exporters and their supply chains, negatively affecting profit margins by mid-high single digits if the impact is sustained.
«The recent decline in Japanese equities has factored in some of these risks, but not all. Corporate governance reform and increased shareholder returns remain positive domestic structural changes,» he added.
And on India, Wolf believes the country’s equity market is the best positioned relative to most Asian markets due to a tariff rate that was lower than expected (27 percent), greater sensitivity to the modest economy and a greenback that is no longer strengthening with room to cut interest rates.
In addition, Wolf is also positive on gold and fixed income but cautioned against US equities given the «substantial risks» to its outlook.
