BRICS could be hit with 10% tax

A mixed affair for European equities this morning, with traders weighing up the implications of Donald Trump’s decision to delay the reciprocal tariffs (against) set against the threat of a 10% BRICS tax. Whether it is a case of him chickening out, he clearly does not want to implement the reciprocal tariffs in their original format, and thus what started as April, pushed to July, and now turns to August. There will be many that see this as weakening his hand as nations note his unwillingness to follow through on his threats. Nonetheless, this once again provides markets with a breather, bringing over three-weeks longer until tariffs kick in.

The obvious benefits of holding off rather than implementing a swathe of tariffs also have a likely unintended consequence of writing off a July rate cut from the Fed. While Trump can point towards the inflation levels and claim that his policies are not inflationary by nature, the FOMC will want to judge based on the stable and long-term policies rather than simply a lull before the higher tariffs come into effect. Thus, if Trump wants rate cuts, he arguably needs to either implement or call off the remaining tariffs, allowing the Fed with a period of months to see that prices do not surge once the final rates are in place.

Nonetheless, Trump certainly hasn’t given up on tariffs as a tool, with the President warning of a potential 10% tariff on BRICs nations. Coming in response to their “anti-American policies,” we have seen gold and silver head lower in response. After-all, it has been the BRICs nations that have led the way in stockpiling gold in favour of US treasuries. This not only has potential knock-on implications for current BRICs nations, but also will potentially stave off fresh applications if membership brings an automatic tariff for US exports. Coming on the second day of the BRICS summit, traders will be watching closely for any response today.

On a day largely devoid of major US data points, today has seen a range of better-than-expected economic metrics out of Europe. Things kicked off with an improved German industrial production figure, rising to 1.2% to counteract last months concerning -1.4% contraction. Next up we saw a welcome surge in the Eurozone investor confidence survey which surged to the highest level since February 2022. Coming off the back of over three-years of pessimism for eurozone investors, today’s reading of 4.5 represents the first convincing sign of optimism for a long time. Part of this optimism will come as a result of the promise of expansive spending policies in Europe, while the global diversification away from US assets has also provided a boost for stocks in the region.