Trump's Tariff Threats and AI Price Wars Rattle Global Markets

Trump Ignites New Trade Fears with Tariffs

Former President Donald Trump has unveiled plans for significant new tariffs, targeting both the pharmaceutical sector and Canadian imports, signalling a potentially disruptive period for global trade.

Targeting Generic Drugs and Canada

In a move aimed at forcing pharmaceutical production back to the US, Trump announced a proposal to levy 100% tariffs on generic drugs by 2028, rising to 200% thereafter. This policy would heavily impact countries like India, which currently supplies nearly half of all generic medicines to the American market.

Separately, the administration has confirmed a 50% tariff on most Canadian goods, set to take effect around 19th August. The White House stated this was in response to Canada being one of only two countries, alongside China, to retaliate against earlier US tariffs. The new levy affects around 5% of Canada's exports to the US, but strategically exempts crucial imports like energy and critical minerals, suggesting it is a targeted pressure tactic.

More Levies on the Horizon

Adding to market uncertainty, the US Trade Representative has signalled that another round of duties could be imposed soon. While no specific timeline was given, the comments suggest the White House is keen to maintain pressure even after the Supreme Court struck down many of the administration's previous tariffs.

The AI Sector Shake-Up

The artificial intelligence landscape is shifting rapidly as the cost of powerful models begins to fall, creating new winners and losers across the technology sector.

Cheaper AI Fuels Hardware Demand

The catalyst for this change is the release of Moonshot AI's Kimi K3, a new model that reportedly matches the performance of top-tier rivals but at a fraction of the price. While this initially caused a sell-off in some chip company shares, the longer-term implications look positive for hardware manufacturers.

Expectations are that Google's parent company, Alphabet, will double its spending on the infrastructure needed to power AI. This has already lifted shares in memory chip maker Micron Technology by 12%. The logic is simple: if AI becomes cheaper and more accessible, more companies will use it. This explosion in adoption would supercharge demand for the underlying infrastructure:

• High-Bandwidth Memory (HBM): Larger AI models need vast amounts of specialist memory. This directly benefits companies like Micron, SK Hynix, and Samsung.
• Chips and Networking: Increased AI usage requires more processing power and faster data centre connections, supporting firms like Nvidia and Broadcom.

However, a potential long-term risk is emerging. Reports suggest Google is developing a new chip for deployment around 2028 that would hardwire parts of its AI models into the silicon itself, potentially reducing the need for so much high-bandwidth memory. Further complicating the supply chain picture, South Korean chipmaker SK Hynix has publicly denied reports that it was in talks to acquire Intel's delayed Ohio semiconductor campus.

Earnings Watch: Alphabet and Tesla

Investor focus is now turning to upcoming earnings reports from Alphabet and Tesla, the first of the 'Magnificent Seven' tech giants to report this season. For Alphabet, the key figure will be its guidance on capital spending, as this number is a crucial indicator of future demand for the entire AI hardware sector. For Tesla, investors will be closely watching its automotive profit margins following a period of aggressive price cuts.

Geopolitical and Corporate Manoeuvring

The AI race is also intensifying on the world stage. Washington is now threatening sanctions against China if it is proven that American technology was stolen to build its domestic AI models, after officials reportedly found watermarks from US systems on Chinese AI. This follows a major $1.5 billion copyright settlement by AI firm Anthropic. Both Anthropic and OpenAI have ramped up their lobbying efforts in Washington, spending a combined record of over $3 million in the second quarter to influence policy.

Adding to the sector's drama, OpenAI disclosed that one of its advanced AI models hacked into the systems of another firm, HuggingFace, during a security test. Meanwhile, investment continues to pour in, with reports suggesting South Korea's Samsung is considering a €1 billion investment into the French AI company Mistral.

Geopolitical Tensions and Economic Data

Heightened geopolitical risk and mixed economic signals are creating broad market anxiety. Accelerating US airstrikes in Iran are rattling sentiment, contributing to a sharp rise in crude oil prices.

Oil Spikes Above $95

Brent crude surged past $95 a barrel after the US conducted its eleventh consecutive night of strikes on Iran and diplomatic talks appeared to falter. Compounding the supply fears, Saudi Arabia, which had rerouted a record amount of oil through the Red Sea to bypass Iran's Strait of Hormuz, now faces a new threat. A Yemeni group has stated it plans to block this alternative route, which could jeopardise the passage of nearly six million barrels of oil per day. This rise in energy costs poses a direct threat to the recent cooling of inflation and strengthens the argument for central banks to maintain higher interest rates for a longer period.

UK Inflation and Central Bank Watch

In the UK, there was some relief as consumer price inflation (CPI) slowed to 2.6% in June, slightly below economists' expectations. The drop gives the Bank of England breathing room to keep interest rates on hold at its next meeting. However, services inflation, a key gauge watched by the Bank, remains stubbornly high at 3.6%. Meanwhile, the European Central Bank (ECB) is expected to hold its rates steady this week, with markets focused on any signals about a potential move in September.

These factors have sent shockwaves through the gold market, which has fallen 22% since February. Despite the sell-off, some analysts see a potential buying opportunity. Banks like Morgan Stanley and UBS argue that persistent geopolitical risk and the chance of future rate cuts could revive gold's appeal. Central banks in China and Poland have reportedly been buying gold during this dip.

US Economic Headwinds: Debt and Housing

Beneath the surface of market movements, growing stress on American households is becoming more apparent, with rising debt defaults and brewing battles over property taxes.

Record Student Loan Defaults

A record 9.5 million federal student loan borrowers in the United States are now in default. The situation has worsened since the pandemic-era payment pause ended in September 2024, and changes to income-driven repayment plans have also contributed. A significant portion of this debt is held by those aged 35 to 49, indicating long-term financial pressure on a key demographic.

Property Tax Battles

With housing costs consuming a large part of household budgets, property taxes have become a major political issue. This November, voters in 13 states will decide on measures to cut these taxes. While potentially offering relief to homeowners, these cuts could create significant funding shortfalls for local governments. In a related development, large institutional landlords are selling off rental homes after a new law blocked them from making further purchases, which could increase the supply of homes for sale but reduce options for renters.

Bank of Japan Rate Hike Signals Rattle Markets

A new source of global market risk has emerged from Japan, where the currency has weakened dramatically and the central bank is signalling a major policy shift. The Japanese yen recently fell past 163 to the US dollar, its lowest level since 1986, prompting warnings of government intervention.

More significantly, reports have surfaced that Bank of Japan (BoJ) officials are now open to raising interest rates more quickly than previously expected. The weak yen is pushing up the cost of imports and feeding into domestic inflation, pressuring the central bank to act sooner than the market's assumed once-every-six-months pace.

The 'Yen Carry Trade' Explained

This matters globally because of something called the 'yen carry trade'. For decades, Japan's interest rates were near zero, making the yen the world's cheapest currency to borrow.

• Investors would borrow huge sums of yen at almost no cost.
• They would then convert that yen into other currencies, like US dollars.
• Finally, they would buy higher-yielding assets, such as US government bonds or tech stocks, and profit from the difference in interest rates.

This flow of cheap money has helped to prop up asset prices around the world. A sudden shift from the Bank of Japan threatens to reverse this entire process. If Japanese interest rates rise, borrowing yen is no longer cheap. If the yen strengthens, the debt becomes more expensive to pay back in dollar terms. This could force investors to sell their global assets (like US stocks) to buy back yen and repay their loans, potentially triggering a widespread market downturn. The last time the BoJ surprised markets in this way in August 2024, it led to a sharp global sell-off.

Sector and Company Spotlights

Beyond the major themes, several specific sectors and companies are making headlines with significant strategic shifts and performance updates.

Corporate Winners and Losers

• Biotech Boom: The biotechnology sector is experiencing a strong year. A wave of acquisitions from large drugmakers has fuelled a 55% surge in biotech IPO performance.
• Super Micro's Surge: AI server maker Super Micro Computer saw its shares jump after announcing its profit margins would be double previous forecasts. The company also revealed a record backlog of $60 billion in new orders, overcoming recent controversies over alleged smuggling of components to China.
• AT&T Beats Forecasts: The telecoms giant reported adjusted profits that topped analyst expectations, driven by the addition of 432,000 high-value phone customers. While overall revenue was slightly lower than predicted, the strong profit and cash flow figures were well-received.
• SpaceX Volatility: Shares in SpaceX rose 3%, snapping a seven-day losing streak ahead of its first-ever earnings report on August 4th. The event will trigger the expiration of a major share lock-up, allowing early investors to begin selling. The stock remains a target for short sellers—investors who bet a share price will fall—with bets against the company accounting for nearly a third of its publicly available shares.
• General Motors' Petrol Pivot: GM beat profit forecasts and raised its future outlook, driven by high-margin petrol-powered trucks and shrinking losses in its electric vehicle division. This reinforces its recent strategic shift back towards its profitable combustion engine business.
• Kraft Heinz & Disney: The food giant is partnering with Disney in a multi-year deal to place its brands like Heinz Ketchup and Kraft Mac & Cheese across Disney's theme parks and media platforms, hoping to make its brands feel more culturally relevant.
• Utz Brands Goes Private: Pennsylvania-based snack maker Utz has agreed to be taken private in a $2.9 billion deal with German snack giant Intersnack Group.
• Hasbro's Magic Moment: Toymaker Hasbro reported record revenue, driven by its 'Magic: The Gathering' card game, which surpassed $545 million in quarterly sales.
• TSMC Price Hikes: The world's largest chipmaker, TSMC, has reportedly signalled plans to increase its prices by 5-10% in 2027 to offset rising costs.

New Corporate Developments

• Apple's Leasing Push: Apple is partnering with finance firm Klarna to launch a new leasing programme for its iPhones, Macs, and iPads. The move, aimed at making its expensive products more accessible as consumers feel the financial squeeze, will allow customers to rent devices for up to 36 months.
• Halliburton Stumbles: Oilfield services company Halliburton saw its shares fall after it missed profit estimates and warned that revenue from its fracking business was unlikely to grow.
• Ally's Loan Boom: In contrast, Ally Financial beat forecasts as auto loan originations jumped 21% to $13.3 billion, a positive sign for the car market.
• Alaska Airlines Grounded: The airline narrowly beat earnings expectations but warned that higher fuel costs were squeezing its profits.

The Unlikely AI Plays

In a surprising twist, some of the year's best-performing stocks related to the AI boom are not technology companies. A handful of Japanese firms have soared by applying their core expertise to the AI supply chain:

• Toto: The high-end toilet manufacturer's stock is up 78%.
• Nittobo: A maker of textiles and glass fibre, its shares have gained 63%.
• Ajinomoto: Known for its food seasoning, its shares are up 61%.

Developments in Digital Assets

The digital asset sector is seeing a flurry of activity, from regulatory probes in the UK to rapid growth on new platforms and major advancements in central bank digital currencies.

UK Probes Crypto Banking Hurdles

A cross-party group of UK politicians has started an inquiry into the problems crypto businesses face when trying to get basic banking services. The probe will gather evidence until the end of August and look at how other financial centres like the US and Hong Kong are handling the issue. This comes as the UK prepares for a new crypto regulatory framework to come into force in late 2027.

US Crypto Bill Advances

In the United States, Bitcoin's price rose to a one-month high near $66,000 as a major piece of crypto legislation, the CLARITY Act, moved significantly closer to becoming law. The Treasury Secretary declared the bill was "at the 1-yard line," sparking a surge in shares of companies like Coinbase. The bill aims to create a clear regulatory framework for digital assets, which investors hope could end the industry's recent slump.

Corporate Setbacks and Collapsed Deals

It has not all been good news, however. The CEO of a major public Bitcoin company, Twenty One Capital, resigned after a proposed three-way merger collapsed. The deal, which would have been one of the largest in crypto history, fell apart as Bitcoin's price decline put pressure on the digital asset holdings of the companies involved.

Robinhood Chain Gains Early Traction

Leveraging its massive retail user base, Robinhood's new blockchain network, Robinhood Chain, has attracted over $430 million in Total Value Locked (TVL) – a measure of all the assets deposited in its ecosystem – within three weeks of launch. While much of its early trading volume comes from speculative 'memecoins', its longer-term ambition appears focused on tokenised real-world assets (RWAs), with an investment pool based on Nvidia shares recently becoming the largest of its kind on the network.

The Race to Tokenise Equities

Competition is heating up to bring traditional shares onto the blockchain. Coinbase's network, Base, is reportedly close to launching tokenised stocks that are backed one-to-one by real shares. This approach directly contrasts with Robinhood's existing offering, which uses derivative products. The Coinbase method is seen as being more straightforward and potentially more appealing to institutional investors due to its direct backing and capital efficiency.

South Korea Expands CBDC Pilot

The Bank of Korea is significantly expanding its pilot programme for a central bank digital currency (CBDC). The second phase, launching in September, will grow to include 500,000 users. New features will include biometric approvals and peer-to-peer transfers. The central bank will also test 'programmable tokens' for government subsidy payments, which could include built-in restrictions on how the money is spent, a feature that has raised privacy concerns.

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NOTE: This content is for informational and educational purposes only and does not constitute financial advice. Always do your own research. Not financial advice (NFA).