Global trade war – France is vulnerable
For now, the sell-off in global equities is comparatively muted. But, if Trumps’ tariffs start a global trade war, which markets are most at risk? eyeQ say French equities are the most vulnerable.
The US decision to impose tariffs on Canada, Mexico & China has pushed global equity markets into the red. But, thus far, the sell-off has been comparatively muted.
Markets still seem to be confident tariffs are a negotiating tool only. The recent spat with Colombia has encouraged the idea that Trump shouldn’t be taken literally & things can de-escalate quickly.
But what it things move in the opposite direction & this is the beginning of a global trade war? In that scenario equity markets could be at risk. But the question is which markets are most vulnerable?
On eyeQ, France’s CAC 40 is the richest global equity market relative to prevailing macro conditions. It sits 5.3% rich to where the macro environment says it “should” trade.
The chart below shows eyeQ model value in blue versus the CAC 40’s spot price in white. What you can see is aggregate macro conditions are range-bound & don’t justify the latest rally in the CAC. And you can macro relevance is high & stable, i.e. French equities are very much a function of big picture stuff like economic growth, inflation, the ECB etc.
That leaves us with a clear skew. Resilient equities & a lot of the good news is already in the price. Meanwhile, an escalation, especially with Trump saying tariffs on the EU “will definitely happen”, & the CAC 40 looks especially vulnerable.
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