With the first quarter earnings season now underway, equity analysts have been revising down their estimates for profits over the next year. Downgrades have been most pronounced in the US, but have recently accelerated in Europe too. These earnings downgrades reflect the impact of ongoing trade tensions. Higher tariffs may weigh on profits if firms partly absorb higher import prices in their margins, or if weaker consumer demand due to higher prices constrains revenue growth. Ongoing shifts in US tariff policy and other regions' responses make the size of this impact difficult to gauge. Thus, corporates may be understandably reluctant to offer detailed guidance during this earnings season. Nonetheless, equity analysts will be examining firms' commentary to try to understand how trade tensions could impact future profits across regions.
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