Daily Brief Macro: The Tariff Announcement That Shocked Financial Markets and more

• Trump announced 25% tariffs on Canada and Mexico, 10% tariffs on oil and China
• Tariffs are paid by US consumers at the point of entry, not fully equating to a 25% price increase
• Uncertainty about impact of tariffs on prices of goods like maple syrup and avocados

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• A full-fledged trade war is now underway and will soon envelope more countries including Europe and East Asia.
• Such a decisive shift in the approach taken by the global hegemon, the US,  will result in a more unstable world, particularly for smaller and less powerful countries.
• Asia will be a big loser. It will be hit by a slowdown in exports, a diversion of Chinese exports from the US into Asia, and tighter global financial conditions.

• Welcome to this week’s The Drill, which I will be authoring by myself moving forward.
• This means a continued focus on commodities and energy, but also an increased dosage of geopolitics as many of you have wished for.
• Each week, we’ll cover a couple of key topics as well as provide you with a sneak peak into our data models and what they have to say on commodities.

• Negotiating will likely start in spring, but negotiating will be tough as the U.S. wants a phase 2 deal with new objectives to boost U.S. exports and penalties
• China will likely be quick to make concessions on needed agricultural imports and illegal Fentanyl from China, but slow to concede on the idea of penalties. 
• It will be a volatile road to an eventual deal in late H1 or early H2.    

• History shows structural shifts in inflation are rare and that the price of most goods falls over time. 
• The inflation – goods, services and assets –  we know is mostly cyclical- dependent on policy and business cycle driven.
• The real cost of capital and money supply growth are only two leading inflation indicators that matter.

• Tire industry to be a collateral damage in the tariff battle  
• 91% of projected light truck tire requirement is import reliant  
• Trade balance tipping towards China and Canada  

• Donald Trump has currently refrained from imposing tariffs on Canada and Mexico.
• However, there is a looming threat of tariffs on America’s allies.
• This suggests the tax war initiated by Trump against Europe on 20 January could escalate further, potentially surpassing the intensity of trade-in-goods disputes.

• We are updating our models ahead of 4Q24 Results; we downgrade Gruma to Underperform (from Market Perform), while slightly raising our PT to P$380 (from P$377).
• While FX remains a relevant factor for the company (reporting in USD, with most of the sales originated in the U.S., where margins are higher FY25), we see limited upside at current levels.
• We are keeping our other ratings unchanged, with some adjustments to PTs, mostly to the upside, as FX benefits a relevant proportion of our covered Consumer companies that have exposure in the U.S. Within our Supermarkets coverage, we continue to prefer Chedraui, and Beverage companies AC, KOF, FEMSA and Becle within Food & Bev.

• Travel / In Depth: Gulf states roll out the welcome mat for Chinese tourists as focus shifts from oil
• Hong Kong /: Hong Kong stocks rebound after sharp drop as Trump’s tariff war weighs on markets
• Google /: China launches antitrust probe into Google’s market dominance

• Historical challenges of neurosciences. The complexity of the central nervous system (CNS), which includes the brain and spinal cord, is unrivalled in the human anatomy, being made up of billions of interacting neurons and other cells.
• More than 600 neurologic diseases and conditions have been identified.
• Historically, progress in developing disease-modifying, let alone curative solutions for these disorders, has been stymied by incomplete understanding of the CNS, diagnostic challenges due to the lack of reliable biomarkers, the blood-brain barrier (BBB) obstacle, and the high rate of clinical drug development failure rates.