Vasu Menon: US Negotiating Tactic «Offers Hope to Investors»
The US has issued a new wave of tariff threats to more than a dozen countries, including major economies in Asia. According to OCBC’s Vasu Menon, there is reason to be optimistic that this will be more of a negotiation tool.
On Monday, US President Donald Trump sent letters to 14 countries, including Japan, South Korea, Thailand and Indonesia, threatening a new wave of tariffs ranging from 25 percent to 40 percent. According to a statement, this marks a commitment to «take back America’s economic sovereignty by addressing many nonreciprocal trade relationships that threaten our economic and national security».
While the threats mark yet another risk to the downside, OCBC investment strategist Vasu Menon observes that Trump’s suggestion that he was still open to additional negotiations and the August 1 deadline to increase duties give trading partners more time to strike deals.
«The expectations that Trump is once again engaged in a negotiating tactic rather than making serious tariff threats, offers hope to investors,» Menon commented in an investment note. «Eventually, the possibility that the tariffs imposed will be nowhere as high as the draconian figures suggested on 2nd April, may bring relief to markets.»
Time Required, Expect Turbulence
In the meantime, Menon advises investors to expect market volatility as it will take time for negotiations to bear fruit.
«Nevertheless, once we get greater clarity about Trump's reciprocal tariffs, and if they are not as bad as what was proposed in early April – investors may be pleased that they will have one less key uncertainty to deal with going forward,» he said. «However, there is still the risk that the US could face retaliation from its trading partners and more tit-for-tat measures could follow.»
Sanguine Outlook
Overall, OCBC remains «sanguine» on the medium-term investment outlook. The bank does not anticipate a US recession, though stagflation is a possibility. It also underlines reduced uncertainty due to the «One Big Beautiful Bill Act» passed last week which raises the US government debt limit by $5 trillion and eased geopolitical tensions in the Middle East.
In addition, Menon highlighted ample idle liquidity on the sidelines that could provide support during market correction as well as the potential for rate cuts by the Fed if inflation doesn’t spike.
«Markets have been very resilient so far this year despite tariff shocks, inflation fears and geopolitical concerns,» Menon added. «While these events caused brief selloffs, stock prices rebounded afterwards, and the snapbacks have been relatively fast and sharp. So, it still makes sense to stay invested but it is important to invest carefully and manage risk through portfolio and time diversification.»
