While recent economic statistics still show the resilience of the US economy, confidence indicators are showing signs of weakness. And yet confidence is essential for consumption, which has been the basis of US growth for years. Governments in the rest of the world, rather than remaining spectators of Donald Trump's moods, have launched major manoeuvres to support growth.

 

Donald Trump therefore continues to blow hot and cold and, by introducing significant tariffs, is threatening the balance of world trade. Is he in a negotiating position or does he want to force his way through? It is still too early to say, but the calls for order from the economy and the markets should quickly get his attention. Similarly, the growing number of reactions from American industrialists are likely to have an impact, even if there is none so deaf as he who will not hear. It may be the American consumer who holds the key and will bring about a realisation. Consumption is the essential fuel of American growth. If confidence declines, consumption falters and so does economic activity. The confidence indicators are already showing signs of a downturn that need to be monitored.

 

We are not considering an American recession at this stage, but we remain vigilant in the face of uncertain political decisions. The Federal Reserve could also play its part by lowering its rates two or three times between now and the end of the year if the economy slows down too sharply.

 

A trade war only creates losers and protectionism, as all historical precedents show, is not a good solution. This uncertainty is forcing all governments and central banks, with the exception of the United States, to find answers. In Europe, for example, the massive recovery plans, which are mainly focused on the military sector for the time being, are taking the continent away from the budgetary orthodoxy that has prevailed for many years. They will have a beneficial effect on activity, which will largely offset the harmful consequences of US tariffs. The European Central Bank will also continue to ease monetary policy even if inflation has not been completely defeated. Finally, circumstantial reconciliations, with China for example, are always possible. Europe does not seem willing to suffer the strong-arm tactics of Donald Trump without reacting. This is a good point that will undoubtedly force our continent to reinvent itself. While some sectors, such as the automotive industry, will be severely affected by customs duties, the European economy as a whole should resist and perhaps even rebound gradually after years of stagnation.

 

China is also stepping up its stimulus plans with the aim of boosting domestic consumption. Overcapacity in many industries does not argue in favour of increased investment. Trade is threatened by US policy. This leaves the consumer, who must be encouraged by restoring some of the confidence lost since the health crisis.

 

The world economy is therefore at a turning point and many countries must respond to Donald Trump's changes of direction in his policies and alliances. Good news could come from Ukraine with a ceasefire that would benefit everyone, but especially Europe.

 

The markets are showing nervousness in the face of these political procrastinations. The companies most dependent on world trade are impacted, while those with more domestic activity are relatively preserved. This forces us to respect geographical and sectoral balances in our portfolios. We have slightly strengthened Europe and China in our diversified management.