The next Daily US will be published on Tuesday, 22 April.
From the studio:
Video:CIO's Dominic Schnider on USD weakness, key FX calls, and our new gold target (1:58)
Podcast: CIO鈥檚 Eva Lee and Carl Berrisford discuss the delisting risks of Chinese ADRs (15:03)

Thought of the day

What happened?
The S&P 500 fell 2.2% and the tech-heavy Nasdaq Composite was down 3% on Wednesday, after Federal Reserve Chair Jerome Powell stressed that the boost to inflation from tariffs could make it harder for the central bank to counter weaker growth. This rekindled concerns that the Fed could be hampered in its ability to support the economy.

Powell said that President Trump鈥檚 tariffs had been 鈥渟ignificantly larger than anticipated鈥 and may place the Fed in a 鈥渃hallenging鈥 position by fueling higher inflation and slower growth. He added that policymakers would 鈥渨ait for greater clarity鈥 before adjusting policy. His comments undermined recent confidence that the Fed would view any boost to inflation resulting from tariffs as transitory.

The speech followed news that the Trump administration had imposed restrictions on AI chipmaker NVIDIA鈥檚 exports to China, creating headwinds for the US tech sector and pointing to a further deterioration in relations between the world鈥檚 two largest economies. NVIDIA shares fell 6.9% on the day, after disclosing that new government licensing requirements for its H20 AI chip would result in a USD 5.5bn charge, while AMD also warned of up to USD 800mn in costs from similar controls.

Gold rallied above USD 3,330/oz and US 10-year Treasury yields fell 5bps to 4.28%. The US dollar fell against the euro with the EURUSD trading at 1.137. S&P 500 futures on Thursday were up 0.8% at the time of writing, with sentiment improving following comments from President Trump that 鈥渂ig progress鈥 was being made in trade talks with Japan.

What do we think?
Despite the latest setback in relations between the US and China, we think it is more likely than not that a compromise can be reached over the coming months. While it could take some time, we believe the US and China will walk back from the recent tit-for-tat escalation, and that US-China tariffs will settle at around 34%. President Trump has said he would 鈥渓ove鈥 to make a deal with China. Overall, we expect the effective US tariff rate ex-China to settle in the 10-15% range, and Canada and Mexico to remain largely exempt from tariffs.

On the latest chip restrictions, we expect the direct impact across the semi supply chain to be manageable beyond the broader sentiment hit. While ASML reported lower-than-expected net bookings for the first three months of this year amid tari ff uncertainty, the semi equipment maker expects demand to pick up into 2026 driven by artificial intelligence. Earlier today, Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chip manufacturer, maintained its revenue growth outlook and capital spending projection for 2025, after posting a 60% growth in 1Q profits. It also kept its forecast for AI-related sales growth to double this year, suggesting the company is confident in the underlying AI demand. Without taking any single-name views, we retain our positive view on AI鈥檚 growth story in the years to come, and believe that big tech companies will continue to plan their capex on a longer-term basis as AI technology advances.

We also do not take Fed Chair Powell鈥檚 comments as ruling out rate cuts if growth weakens. For now, Fed officials are keen to stress to markets that they want to prevent any increase in prices arising from higher tariffs from turning into a more sustained bout of higher inflation. But we believe the Fed will be willing and able to respond to signs of economic weakness, especially rising layoffs. Our base case is that the Fed will cut by 75-100 basis points this year.

How to invest:
Recent developments are a reminder that market swings are likely until there is greater certainty over the outlook for tariffs. Against this backdrop, we recommend various strategies to manage volatility.

Take advantage of volatility. With volatility likely to remain high in the near term, investors should prepare to use swings in the market to diversify and strengthen portfolios for the longer term. We believe that strategies that gradually phase in to equities or balanced portfolios can be effective ways to navigate volatility while building investments for the future. We believe that US equities will end the year higher than today and rate them Attractive.

Gold. An adequate allocation of gold has proven a helpful cushion against uncertainty over trade. The precious metal recently traded above USD 3,330 an ounce, taking its gains for the year to around 27%. Despite this strong run, we believe gold can advance further, and our base case is that the price will reach USD 3,500 an ounce this year. Along with simmering geopolitical tensions, gold is benefiting from worries that higher tariffs will kindle inflation.

Diversify with hedge funds. By dynamically adapting to macro shifts, hedge fund strategies like discretionary macro, equity market neutral, select relative value, or multi-strategy can cushion portfolios in down markets. We believe that the alpha orientation and conservative posture of multi-strategy funds will mean near-term performance is likely to be largely insulated from market volatility. Similarly, we expect that macro strategies should generate positive outcomes amid the volatility. Investors, however, should be aware of the unique drawbacks inherent in hedge funds, such as illiquidity and a lack of transparency.

Seek durable income. Quality bonds can help dampen portfolio volatility, and we currently see the risk-reward outlook as appealing. Despite the recent period in which Treasuries fell in tandem with stocks, we believe the broadly negative correlation between stock and bond returns should hold over the longer term.