Markets appear sanguine that progress will be made. In their reactions, wealth managers focused particularly on Japan.    

Despite a constant barrage of tariff-related headlines, financial markets are generally taking the latest episode in their stride, according to John Wyn-Evans, head of market analysis at UK wealth manager expects the US weighted average tariff rate will ultimately settle back around the 12 per cent mark as more countries strike deals with the US.  

“While tariffs will likely remain high—compared with levels at the start of the year—as will the headline risk, we believe the US effective tariff rate should end the year at around 15 per cent. This would be a headwind to growth but not enough to trigger a recession, in our view, given the resilience of the US consumer and the adaptability of global supply chains," Haefele continued. 

“Investors might now be able to return to ‘business as usual’ over the next few weeks, meaning that the focus will shift to economic data and the second quarter company results season,” Wyn-Evans added. Key indicators will include measures of US inflation, as the extent to which tariff costs are assessed and a weaker dollar have been passed on to consumers, and whether the US Federal Reserve will be given an opportunity to cut interest rates. Employment data will also be important.

David Kohl, chief economist at Julius Baer, also highlighted how the threat of higher tariffs remains, creating headwinds for US investment intentions and increasing uncertainty about higher US inflation. “The ongoing threat of higher tariffs intensifies stagflationary risks in the US and puts pressure on Europe to stimulate domestic demand further in order to offset headwinds in international trade. China’s export-oriented growth strategy is expected to focus even more on markets outside the US,” Kohl said.

Whincup believes that after a stagflationary summer, the fog may clear into the fourth quarter allowing the Fed to cut again and reboot a soft-landing.

Asset allocation 
“We’ve moved to modest positive on duration and corporate risk, further upgraded our positive signal on infrastructure and become negative on the US dollar. We’ve held our modestly positive position on equities, both developed and emerging markets, but it is tempered after the rally since the initial pause on the “liberation day” tariffs,” Peter Branner, chief investment officer, at Aberdeen, said.

Aberdeen highlighted how a significant increase in European defence spending is coming. NATO members are coalescing around increasing defence spending from 2 per cent of GDP to as high as 5 per cent over the medium-term. While the growth multipliers of defence spending are low, this will nonetheless be a tailwind for European economies.

“That said, in equity markets, the European defence sector has already seen very material outperformance. Very lofty sales and earnings expectations are now baked into current valuations,” the firm said.

"We continue to recommend phasing into global equities or diversified portfolios to navigate volatility ahead," Haefele continued.