Markets welcome resumption of dialogue.
Last week's Sino-American talks in London have helped revive a fragile trade truce. This new framework agreement, reached exactly one month after their meeting in Switzerland, aims to implement the Geneva consensus, with Beijing committing to accelerate rare earth deliveries and Washington agreeing to partially ease its semiconductor export restrictions. While President Xi’s strategic firmness appears effective in the face of Donald Trump's pressure, tariffs remain unchanged: 55% on Chinese goods entering the US (including 25% from Trump’s first term) and 10% on American exports to China. The trade conflict appears far from resolved, given the structural imbalance of the trade balance. Despite this status quo, Asian markets welcomed the resumption of dialogue, even amid ongoing tensions in the Middle East. The next critical deadline is August 10, marking the end of the 90-day tariff truce.
New geopolitical uncertainties
Global geopolitical risks are undeniably operating at particularly elevated levels this year. Between the war in Ukraine, the trade war launched by the US president against most of America’s commercial partners, ongoing tensions between the US and China, and the chronic instability in the Middle East, Israel’s recent strike on Iranian nuclear facilities adds to an increasingly concerning pattern. This incident raises fears of a potential regional crisis.
However, despite the conflict’s potential severity, the overall economic impact remains, at this stage, contained. The cornerstone of this resilience lies in the price of oil, which is the primary transmission channel between geopolitical shocks and global economic disturbances. A sharp spike in crude prices directly affects production costs, fuels inflation, and suppresses household demand. Conversely, as long as oil prices remain in check, the global economy can absorb geopolitical stress without slipping into crisis.
Currently, oil markets remain relatively stable. Following a brief spike at the end of the week, Brent crude has settled around $75 per barrel, well below the peaks seen in past crises. This stability largely stems from surplus production capacity, notably in the United States (thanks to shale oil), Saudi Arabia, and other producing nations, which can offset a potential decline in Iranian output. Only one event could potentially reverse this dynamic: an unlikely Iranian blockade of the Strait of Hormuz. More than 20% of global oil output passes daily through this narrow strategic waterway. Any sustained disruption would trigger a major supply shock, cause immediate price spikes, and place severe pressure on global energy supply chains.
For now, financial markets remain cautious but generally calm. Stock indices have undergone a mild initial correction, mostly as a precautionary response, with no signs of panic. Credit spreads and sovereign yields are holding steady, and traditional safe havens like gold and the US dollar have seen only modest movements. In summary, as long as the integrity of the Strait of Hormuz is maintained and oil prices remain under control, the global economic risk appears contained, despite a clear and growing geopolitical threat.
This week’s figure: 0%
This Thursday, the Swiss National Bank is expected to logically announce a new cut to its key interest rate, bringing it down to 0%. The absence of inflation in the country is the main driver behind this move, which could pave the way for a new phase of negative interest rates later this year.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
