Muzinich Weekly Market Comment: Too little, too late

August 4, 2025

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This past week brought an intense wave of information across multiple fronts—political, macroeconomic, microeconomic, and corporate. Analysts had a lot to digest: the reciprocal tariff deadline, month-end portfolio rebalancing, major central bank and policy meetings, top-tier US economic data, and key Q2 earnings from tech giants.

Investors were presented with a possible “light at the end of the tunnel” last week as the reciprocal tariff deadline expired. Estimates place the average effective US tariff rate on imported goods between 15% and 18%, with the lower end reflecting post‑substitution effects (after imports shift in response to tariffs). Even so, tariff rates are now at their highest levels since 1934¹.

Treasury Secretary Scott Bessent reports that the US has collected about US$100 billion in tariff revenue so far this year, a figure projected to reach US$300 billion by year‑end 2025². Over the longer term (2026–2036), tariff revenues are estimated to total US$2.8 trillion, equivalent to roughly 0.7% of GDP per year. However, economic models suggest that in the long run the US economy will be about 0.4% smaller and price levels will settle at roughly 1.8% higher¹.

More deals are expected to follow. Mexico has successfully extended its trade negotiations for an additional 90 days, and China is expected to secure a similar extension for tariff talks during the meetings in Sweden. Most of the new tariffs will take effect after midnight on August 7, allowing US Customs and Border Protection time to adjust systems for levy collection. The seven-day window before implementation gives room for further negotiations for those seeking to reduce reciprocal tariffs.

In Western markets, Switzerland is likely to move quickly to secure a better trade agreement after being caught off guard by a tariff hike to 39%. Swiss chocolatiers and watchmakers face significant risks to sales in the world’s largest consumer market. Meanwhile, Switzerland’s pharmaceutical industry, which accounted for nearly half of Swiss exports to the US in 2024, are at stake³.

In emerging markets, Taiwan is expected to sign a deal on more favourable terms, while India and Brazil, facing tariff rates of 25% and 50% respectively, are under pressure to find a common resolution.

The devil is also in the details of reciprocal tariffs, particularly their exemptions. In Brazil’s case, government estimates indicate that after exemptions, only 35.9% of its exports to the US (by value) will face the steep 50% tariff under the new executive order, with beef and coffee still among the key commodities facing this high import levy⁴.

Similarly, the US decision to exempt refined forms of copper imports brought significant relief to domestic industries and copper-exporting nations in Latin America, especially Chile. The 50% tariff will apply only to semi-finished copper products such as pipes, wires, rods, sheets, and tubes, while less-processed forms—including ore, concentrates, and cathodes—will remain exempt.

Meanwhile, could all the tariff drama be for nothing? The US Court of Appeals for the Federal Circuit has begun hearing arguments on President Trump’s authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA), with a ruling expected “within weeks.” Any decision will likely be appealed to the US Supreme Court, but if Trump ultimately loses, it could upend trade policy and strip his administration of one of its favoured tools for economic leverage.

The policymaker modus operandi remains one of “no adjustment.” In China, the Politburo meeting acknowledged resilient first-half GDP growth of 5.3% year-on-year, while also noting lingering risks and challenges. The leadership called for continued supportive macroeconomic policies, but refrained from announcing any major new stimulus measures, disappointing investors who had hoped for further action.

Of the six central banks that met, only South Africa adjusted rates, cutting its policy rate by 25-bps to 7.0%, in line with expectations. Governor Lesetja Kganyago welcomed the recent moderation in inflation expectations. In the G10, two major central banks signalled they are moving closer to policy shifts. The Bank of Japan kept its target rate at 0.5%, but Governor Kazuo Ueda outlined two key conditions for the next hike: whether the spike in food prices boosts inflation expectations, and whether hard data holds up following the Japan-U.S. tariff deal. Bloomberg’s latest survey shows that 42% of 45 economists now expect a rate hike in October, up from 32% previously⁵. Meanwhile, the Federal Open Market Committee (FOMC) left rates unchanged at 4.25%–4.50% for a fifth consecutive meeting but edged closer to easing. Governors Chris Waller and Michelle Bowman dissented, marking the first double dissent since 1993. The policy statement struck a more dovish tone, noting that growth had “moderated in the first half of the year,” and removing prior language that growth was “expanding at a solid pace.” Federal Reserve (Fed) Chair Powell balanced this with mildly hawkish remarks, noting that “almost the whole committee” believes the economy “is not performing as if restrictive policy is holding it back inappropriately⁶.”

It is worth recalling that the FOMC’s core mandate is to promote maximum employment and stable prices, defined as roughly 2% inflation. Its two key gauges, Personal Consumption Expenditures (PCE) inflation and non-farm payroll (NFP) employment, were both released during the week. The PCE data showed weaker consumer spending alongside a tariff‑driven uptick in goods prices. The Fed’s preferred measure of underlying inflation rose 0.3% month-on-month in June, one of the fastest increases this year, while spending barely grew as households cut back on tariff‑exposed goods and focused on necessities⁷. The labour report was more troubling; NFP increased by just 73k in June, well below expectations, with sharp downward revisions leaving the job gains of the past two months at near zero. Unemployment rose to 4.2%, even as the participation rate fell, suggesting people are giving up looking for work. This left three‑month average job growth at 35k, well under the estimated 80k–100k needed to keep unemployment from rising⁸. Following the NFP report, the Overnight Index Swap (OIS) market adjusted its probability to 87% for a 25-bps rate cut in September⁹.

Given the sheer volume and complexity of developments, it is nearly impossible to fully assess the broader implications of the week’s events. President Trump took to social media to give his opinion, declaring “Too Little, Too Late. Powell is a disaster. DROP THE RATE! The good news is that tariffs are bringing billions into the USA¹⁰.” A more useful approach may be to focus on how asset classes have reacted, as market price movements offer valuable clues about how participants are interpreting and prioritizing this flood of information.

For market sentiment, our preferred gauge, the VIX, accelerated past the 20 level, signalling potential trouble ahead as investor confidence wanes. In assessing which sovereigns fared best from the latest tariff developments, currency markets point to the US as the clear winner, with the dollar strengthening broadly against G10 peers, and the euro posting a particularly weak performance. In emerging markets, the Brazilian real bucked the trend, likely supported by the central bank’s decision to keep its policy rate at 15% (see Chart of the Week). Equity markets reflected deteriorating growth prospects, with global indices in the red—industrial stocks underperformed, and the Bloomberg World Large & Mid Cap Index fell by more than 2.0% for the week. Meanwhile, the US government bond curve bull‑steepened, reflecting growing market concerns that the US economy may be entering a stagflationary environment.

Chart of the Week: US seen as the Tariff winner

Source: Bloomberg as of August 1, 2025.  For illustrative purposes only.

Past performance is not a reliable indicator of current or future results.

 

References

1. The Budget Lab, State of US Tariffs, as of July, 30, 2025.
2. Reuters „US could collect $300 billion in tariff revenue this year, Treasury chief says” as of July 9, 2025.
3. “ Switzerland slammed with 39% Tariff Rate in US trade blitz” as of August, 1, 2025.
4. Reuters, “ Brazil sees 35.9% of exports to US facing steeper tariff, pushes reversal for coffee” as of July 31, 2025.
5. Bloomberg, “ BOJ watchers ring forward next rate hike call for trade deals” as of August 1, 2025.
6.Bloomberg, “ US react: Powell overrides dovish statement, underwhelms market” as of July 30, 2025.
7. Bloomberg, “ US react: consumers showing signs of strain amid price pressures”, as of July 31, 2025.
8. Bloomberg, “ US react: July’s weak jobs report flips the whole narrative” as of August 1, 2025.
9. Bloomberg function WIRP
10.Truth social post by Donald Trump as of August 1, 2025.

 

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of August 1st, 2025, and may change without notice. All data figures are from Bloomberg, as of August 1st, 2025, unless otherwise stated.

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