Trump raises tariff demands in EU trade talks to 15-20% - FT
On Monday, Goldman Sachs (NYSE:GS) adjusted its economic outlook for 2025, citing recent developments in trade relations between the United States and China. The firm raised its growth forecast for the fourth quarter of 2025 to 1% from the previously expected 0.5%, and simultaneously reduced the probability of a recession occurring within the next twelve months to 35%. This outlook aligns with broader market sentiment, as reflected in the S&P 500’s robust performance, showing a 13.36% return over the past year according to InvestingPro data.
The revision comes after the Trump administration declared a 90-day suspension of the retaliatory tariffs that were implemented in April. This pause will result in the US and China facing tariff increases of 30 percentage points and 15 percentage points, respectively, by 2025. The new tariffs are notably lower than the 54 percentage point hike Goldman Sachs had initially incorporated into its baseline projections. Market stability during this period is evidenced by the S&P 500’s beta of 1.01 and strong financial health score of 3.31 (rated as GREAT by InvestingPro).
Goldman Sachs anticipates that the US effective tariff rate will see an increase of 13 percentage points, slightly below the previously assumed 15 percentage points. This adjustment takes into account expected sector-specific tariffs on pharmaceuticals and semiconductors. The firm’s analysts believe this moderation in tariffs and the significant easing in financial conditions over the last month warrant an upgrade in the economic growth forecast. For deeper insights into market valuations and additional economic indicators, InvestingPro subscribers have access to over 30 exclusive financial metrics and expert analysis.
Additionally, Goldman Sachs foresees a shift in the rationale for rate cuts by the Federal Reserve, from a stance of providing insurance against downturns to one of normalizing policy as growth remains relatively steady. The firm predicts that the unemployment rate will rise less than previously expected, diminishing the urgency for aggressive policy support. Consequently, the expectation is that the Fed will initiate a series of three rate cuts later than initially anticipated, starting in December rather than July, and will space these cuts out over alternate meetings instead of enacting them in succession.
In other recent news, Deutsche Bank (ETR:DBKGn) has revised its year-end target for the S&P 500 Index, lowering it from 7,000 to 6,150 due to the impacts of newly announced tariffs. The bank’s analysts, including Binky Chadha, have reduced their S&P 500 earnings per share estimate for 2025 from $282 to $240, reflecting a 5% decline from the previous year. This adjustment considers potential price increases, volume declines, and market uncertainty. Meanwhile, Evercore ISI highlights the resilience of the U.S. economy despite a slight 0.3% GDP contraction in the first quarter of 2021, with solid earnings reported by S&P 500 companies. However, trade policy uncertainties and inflation concerns continue to pose risks.
Additionally, Marko Kolanovic warns of a potential market downturn, drawing parallels to past financial crises and pointing out high price-to-earnings multiples. Kolanovic suggests a possible 20% decline in market levels, emphasizing caution amid significant downside risks. In a different sphere, the Vatican’s leadership change following Pope Francis’s passing could influence global markets. Nigel Green from deVere notes that the new Pope’s stance on issues like capitalism and climate change could shape financial decision-making and ESG investing trends. These developments underscore the interconnected nature of global markets and the various factors influencing investor sentiment.
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