News that the US and Russian Presidents plan to meet in Alaska on Friday raised hopes of progress towards an end to the war in Ukraine and came after a positive week for stocks, which were buoyed by strong earnings. With the bulk of S&P 500 companies having reported, 80% have beaten expectations, helped by a weaker dollar and earlier analyst downgrades. The positive earnings news helped equity investors look past data from the Institute for Supply Management (ISM) that suggested a cooling in the US economy. The S&P 500ⁱ rose 2.4% (in USD) on the week and the Nasdaqⁱⁱ gained 3.7% (in USD). On trade policy, President Trump said the US will impose a 100% tariff on imports of semiconductors, but he exempted companies that are manufacturing in the US or have committed to do so. Despite Switzerland failing to negotiate down a 39% US tariff rate, Swiss stocks were broadly flat on the week, with many large cap companies able to avoid or mitigate the impact of the levy. Gold, much of which is refined in Switzerland, rose on concerns about a US tariff only for media to report that such a levy may not be imposed after all. On monetary policy, the Bank of England had to hold two rate votes for the first time in its history before cutting rates by a quarter point,highlighting a more hawkish committee than expected.

Quote of the week

On the 80th anniversary of the US atomic bombing of Japan, the US Ambassador to Japan, George Glass, said: “The people of Hiroshima and Nagasaki and their message of peace and hope are an enduring reminder of the power of reconciliation”.

Key data

The ISM indices for manufacturing and non-manufacturing sectors in the US were weaker than expected in July. Q2 nonfarm productivity increased above expectations in Q2 (+2.4%, quarter-over-quarter annualised). Chinese PPI fell 3.6% on the year in July, as deflationary forces remain. Japanese household spending rose 1.3% in June from a year earlier, short of expectations for a 2.7% increase.

[i] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12-month return in USD): 2020, 18.4%;2021, 28.7%; 2022, -18.1%; 2023, 26.3%; 2024, 25%.

[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, Nasdaq Composite (net 12-month return in USD): 2020, 44.9%; 2021, 22.2%; 2022, -32.5%;2023, 44.6%; 2024, 29.6%.

The group has long been dismissed as a collection of developing countries with little in common other than historical border disputes and troubled economies. But in recent  years, it has expanded beyond its original membership to include Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates and has extended invitations to Saudi Arabia. Turkey, Mexico, and others have applied for membership.

Some of these countries lack punch or significance on their own. But they have all been carefully chosen to add to the coalition’s collective strengths and levers of global influence. The Trump administration’s tariffs may be an overreactionto this—but there are signs the group is methodically threatening the economic and geopolitical hegemony of the U.S.

Brics is for China what the G-7 and the European Union are for the U.S. The G-7 and the EU, however, want for resources Brics is rich in. Brics dominates global production in magnesium, aluminum, and antimony, all of which are needed for ammunition production. It has more rare earths, industrial metals, and grains than the G-7, and produces more oil. The group also owns almost double the precious metals reserves of the G-7 and EU combined. Overall, Brics has significant advantages in the artificial intelligence and clean energy revolution.

Iran, South Africa, Egypt, the U.A.E., and Indonesia control four of the world’s six most important maritime chokepoints. And Brics member countries have a still-growing consumption base, with demographic growth trends exceeding the West’s for at least the next 35 years.

Brics is for China what the G-7 and the European Union are for the U.S. The G-7 and the EU, however, want for resources Brics is rich in.

— Maria Vassalou, PhD Head of the Pictet Research Institute, Geneva

It is also emerging as a defense pact, with nuclear capabilities that counterbalance NATO’s. From China and Iran aiding Russia in its war against Ukraine, to declarations regarding the attacks on Iran and the war in Gaza, Brics appear increasingly less shy about asserting its ambitions in the geopolitical arena. The Trump administration’s swift push for a cease-fire in last month’s conflict between Israel and Iran averted any opportunity for China or Russia to get involved. But their recent declarations of solidarity in Rio shows that the incident didn’t go unnoticed.

The U.S. still has the world’s dominant currency. But Trump seems anxious about that, too. In January, his administration threatened to impose 100% tariffs on Brics if it attempts to de-dollarize. It has already developed multiple payment systems that successfully bypass the dollar settlement system, allowing Russia to evade U.S. or EU sanctions. These payment systems, however, don’t amount to de-dollarization, as many of them are implicitly or explicitly pegged to the U.S. dollar. But they do show that the members are willing and able to devise ways that avoid the reach of the U.S. Everything suggests the adoption of a common currency will one day become one of Bric’s goals, although that would take at least a decade to become reality.

Meanwhile, Brics has expanded its intragroup trade by close to 200%—at the expense of imports from the G-7—in response to U.S. tariffs and the war in Ukraine. This has worked to keep Russia afloat. It has also acted as a hedge for China, which has seen U.S. and European markets shut out its products. While Brics cannot replace the U.S. as a destination for China’s exports, they can certainly cushion the blow of tariffs on the Chinese economy.

Trump’s tariffs can only go so far to impede these short-run ambitions. But tariffs issue a significant message to the Brics coalition for the longer term: The member countries will need to disentangle their economic dependency on the West. From an investor’s perspective, that means the emerging markets in Brics will profoundly change. Their opportunities, risks, and accessibility need rethinking by investors, both at a single asset and portfolio level.