Global Markets’ New Playbook: Are Tariffs the Main Act or Is Fundamentals Now Center Stage?

Nomura’s latest report warns that two key shocks—higher-than-expected U.S. tariffs and a disappointing July nonfarm payroll print—have materialized.

With valuations and positioning at lofty levels, markets may see short-term profit‐taking. As policy uncertainty gives way to real economic impact, investors must pivot from trade headlines to the hard data driving global economies.

Key Points

1. The U.S. effective tariff rate rose from 16.3% to 17.5%, ending hopes of a “Talk And Cut Offer” (TACO).
2. July nonfarm payrolls added only 73,000 jobs against expectations of 104,000-120,000, with May and June down-revised by nearly 260,000.
3. Japan and Korea face spillover pressure; MSCI Asia ex-Japan shows limited upside through year-end.
4. Foreign flows reversed: emerging-Asia ex-China saw a $652 million net outflow; India led with $2.2 billion withdrawn.
5. U.S. earnings beat expectations with S&P 500 profits up 10.3%; Asian profits (FY25E) have been cut by 1.2% so far.

Shockwaves from Tariffs: Reality Trumps Negotiation Hopes

The Trump administration’s final tariff schedule extinguished any TACO scenario.

By decree, U.S. tariffs now average 17.5%, up from 16.3% last week.

Countries with deals—EU, Korea, Japan—face 15% duties plus investment pledges.

Malaysia and Thailand saw cuts to 19%, down from 24% and 36%, respectively.

Meanwhile, non-agreement nations endure steep levies: Laos and Myanmar at 40%, Switzerland at 39%.

Unexpectedly, India was hit with a 25% rate—higher than the 15-20% forecast—plus vague “additional penalties.”

Mexico’s USMCA-related exemptions mask a 25% rate extension over 90 days.

Brazil’s duties jump to 50% from August 6, Canada’s rise to 35% spares USMCA-covered goods.

A sweeping 40% transshipment tax now applies to all third-country reroutes.

With tariffs solidified, markets must weigh real hits to supply chains and corporate margins.

Labor Market Alert: July’s Payrolls Fall Short

July nonfarm payrolls delivered only 73,000 new jobs, missing estimates of 104,000–120,000.

May and June were slashed by a combined 258,000 positions, dragging the three-month average down to 35,000—its weakest since summer 2020.

The unemployment rate rose to 4.248%, the highest since October 2021.

Nomura flags this soft report—on top of stretched valuations and bullish positioning—as a trigger for near-term market pullbacks.

Though Fed Chair Powell maintained a hawkish tone in July, softer jobs data heighten the odds of an earlier rate cut.

Investors should brace for volatility as the Fed weighs cooling labor dynamics.

Capital Flows Reverse: Emerging Asia Under Strain

Rising macro risks prompted a funding flight from risk assets.

After seven straight weeks of inflows, foreign investors sold $652 million of emerging-Asia ex-China equity last week.

India suffered the most: a sudden 25% tariff sent $2.2 billion racing out of its equity markets.India-focused offshore ETFs posted their first weekly net outflow in eight weeks.

For the first time in four weeks, U.S.-focused offshore ETFs saw inflows in three out of four weeks.

This “U.S. exceptionalism” suggests capital is rotating back to perceived safe havens.

Chinese assets bucked the trend: China-listed ETFs attracted inflows for a third consecutive week.

Overall, heightened uncertainty is driving funds from vulnerable emerging markets to more stable destinations.

Earnings Divide: U.S. Resilience vs. Asian Pressures

Q2 U.S. earnings have outperformed forecasts, underscoring corporate strength stateside.With 66% of S&P 500 firms reported, aggregate profits rose 10.3% year-on-year, well above the 6.4% consensus just a week ago.

In contrast, Asia ex-Japan companies are trimming forecasts.

Among the 43% of MSCI Asia ex-Japan firms that have reported, FY 2025 earnings estimates have already fallen by 1.2%.

Nomura sees further downside potential for Asian profits, citing tariff impacts and cooling global growth.MSCI Asia ex-Japan’s upside appears very limited through year-end given these headwinds.

Going forward, economic data and corporate results—not trade policy swings—will drive market direction.Investors must focus on beaten-down fundamentals, not fading headlines.

Region-Specific Outlook: Who’s Most Exposed?

Japan & Korea: Tied closely to U.S. demand and supply chains, both markets face short-term pressure.

High valuations and policy-driven cost inflation leave little room for error.

Southeast Asia: Winners and losers diverge sharply.

Malaysia and Thailand benefit from reduced rates, while India and other non-deals bear the brunt of punitive levies.

China: Shows surprising resilience amid capital inflows and selective tariff exclusions.

However, broader global slowing may cap its rally.

U.S.: Continues to attract funds thanks to robust earnings and relative policy stability.

The Fed’s eventual pivot to easing could fuel another leg up, provided labor softness doesn’t spiral into recession.

Action Items: Navigating the “Reality Check” Period

1. Reassess positioning: With high valuations, modest profit‐taking could be healthy.
2. Monitor earnings: U.S. corporate strength may persist—Asia’s profit downgrades warrant caution.
3. Watch economic cues: Retail sales, PMI data and bond auctions will reveal real strain points.
4. Stay flexible: Sector and regional divergences are widening; nimble asset allocation is essential.
5. Manage risk: Use hedges or volatility strategies as uncertainty peaks.

Tariffs have landed, TACO is dead, and the market’s focus must shift from policy theater to hard fundamentals. With data revising down and risk spreads widening, H2 2025 will be the true test of market optimism. Investors who prioritize rigorous economic analysis over headline chasing will be best positioned to navigate the coming “reality check” period.