Morning Bid: Tariff Worries Wane, Hermes Earnings Await

As the global markets brace for the potential impact of new tariffs, investors are keeping a close eye on the developments. The first trade skirmish of the second Trump administration has reverberated through markets, highlighting the ongoing uncertainty in international trade relations. However, as the administration postponed the imposition of 25% tariffs on imports from Canada and Mexico until 1 March, and the 10% increase on Chinese goods took effect, markets seemed to breathe a sigh of relief.

The postponement of tariffs on Canada and Mexico has led to a recovery in risk assets, with equities and currencies experiencing intraday movements that suggest markets are starting to price in the possibility of the proposed tariffs being less severe than initially outlined. The U.S. dollar appreciated rapidly against the Canadian dollar and Mexican peso on February 3, 2025, indicating that markets were starting to price in the possibility of the proposed tariffs on Canada and Mexico. However, as further negotiations and timelines were announced, these movements largely reversed, signaling that markets are closely monitoring the situation.

The potential impact of new tariffs on Canada, Mexico, and China could raise U.S. inflation by 0.8 percentage points and reduce growth by 1.2 points in the first year. In contrast, if only Chinese tariffs are implemented, the economic effects on the U.S. would likely be much more muted: Inflation could rise by roughly 0.2 percentage points, with a similarly sized impact on growth. The direct drag on growth from tariffs on Canada and Mexico is likely to be higher, as these countries are more integrated into the U.S. supply chain.



As the markets digest the potential impact of new tariffs, investors are also looking forward to the earnings reports from luxury goods giant Hermes International. The company is expected to report its first-half 2024-25 results on February 14, 2025, with analysts anticipating a strong performance driven by robust demand for its iconic products and a recovery in tourism spending.

Hermes' strong brand and unique positioning in the luxury market have enabled it to weather economic headwinds and maintain its premium pricing strategy. The company's focus on vertical integration, craftsmanship, and exclusivity has allowed it to maintain its appeal to affluent consumers, even in challenging economic conditions.



As investors navigate the uncertainty surrounding international trade relations and await the earnings reports from Hermes International, they can take comfort in the resilience of the global economy and the strength of the luxury market. By maintaining a long-term perspective and adhering to their strategic asset allocation, investors can weather potential volatility and capitalize on opportunities as they arise.

In conclusion, the postponement of tariffs on Canada and Mexico has led to a recovery in risk assets, as markets price in the possibility of less severe tariffs than initially outlined. The potential impact of new tariffs on U.S. inflation and growth is significant, with higher inflation and reduced growth likely if tariffs on Canada and Mexico are fully implemented. As investors await the earnings reports from Hermes International, they can take comfort in the company's strong brand and unique positioning in the luxury market. By maintaining a long-term perspective and adhering to their strategic asset allocation, investors can navigate the uncertainty surrounding international trade relations and capitalize on opportunities as they arise.