How do you read the entire tariff saga? Yesterday evening yet again President Donald Trump has sent letters to several countries, 50% tariff on Brazil, 25% to Sri Lanka and several other countries. How do you read this move and are you bracing up for a lot of volatility over the next one month?
Geoff Dennis: First of all, we do not know if he would not back away again like he has done before. The tariffs are apparently going to be launched on August the 1st. So, we will see if he backs away again. But the important thing here is the markets are not paying as much attention to this as they did before.
So, in other words, when we had the so-called Liberation Day in early April, markets in the US especially completely fell apart. Everything went down. The dollar went down, bonds went down, and equities went down. Whereas everybody is a bit calmer now. And the reason people are calmer is first of all they do not know if he is going to carry through his threats to impose these tariffs and also very importantly there is a little bit more reassurance that the inflation impact of these tariffs within the US may be less than people had previously thought. So, we have got to watch it. There is a global trade war going on, but we are not going to see a return to the extremely volatile negative trading in the US and therefore around the world that we saw in the early part of April.
Just like you were mentioning the last time we spoke you said that the tariff deadline could be extended. Now, it has not exactly been extended but the implementation deadline we have and that is new, so that is exactly what happened. But now talking about the markets, do you feel that in any way they are under-pricing the impact that these tariffs could have going forward or do you believe that the market has sort of gotten used to these deadlines getting pushed?
Geoff Dennis: I think the latter. The markets have definitely. The markets have got used to these deadlines being pushed. But were these tariff levels to be actually imposed and presumably a lot more countries may well find that they join this list because this list now is, it came out in two slugs if you like.
If these tariffs were imposed, this would eventually cause the markets to be quite volatile for a period of time. They are bad news. They are not good for the global economy. They are not good for the US.
They are not good for all the countries that are being tariffed. It is just we just do not know whether these tariffs are actually be imposed. But this is still absurdly absurd policy, I should say. And it is also worth pointing out that the number of deals that Trump has made on trade, I suppose you could say three, the UK, China, and Vietnam. And perhaps India is not far away and that is why India may get some protection unless I have missed it. I do not think India has been given another tariff announcement if you like in the last week or so. But if he carries these levels through, yes, we will go back to volatile markets just maybe not quite as volatile as they were in April because at the end of the day what investors want to know is what will be the impact on the US economy, what will be the impact on US inflation, what will be the impact on the US trade deficit, and of course, through all of those, what will be the impact on the US dollar?
Also, wanted your thoughts on the recent FOMC minutes that came out yesterday. There is a lot of divergence in what officials think the outlook could be for interest rate for the rest of the year. Although 10 on 17 analysts believe that perhaps we could see at least two rate cuts for the rest of this calendar year. How do you view this and what in your opinion will the interest rate trajectory be for this calendar year and for FY26?
Geoff Dennis: I think we are going to get two rate cuts, I am in that camp. I do not think we are going to get a rate cut in July. We needed a softer employment report at the beginning of the month to get the rate cut in July, but we will get one in September and one in the fourth quarter because what is happening underneath everything that is going on is the labour market is beginning to soften. It is not softening dramatically, but it is also becoming a little bit, what should we say, fixed in place. There are not many people moving. There are not many people being taking new jobs. There are not many people being laid off. There is just not a lot of new job opportunities. Sentiment towards the labour market is also deteriorated and that is going to be powerful support for a couple of rate cuts.
And also, as I have said earlier, if in the end the inflation impact, which frankly we have not really seen yet from the tariffs and just the general inflation story, is perhaps a little bit less fearsome than we all feared it would be a few months ago and to be fair, the Fed feared it would be a few months ago, I think that will open the way for interest rates to be cut.
Chair Powell will not cut rates because Trump tells him to. Chair Powell will cut rates because they think the economy is under a little bit of pressure against a background where the inflation story is still reasonably under control.
