STIR: September Fed Cut Still Seen Locked In, Hawkish Musalem On The Docket

• JP Morgan note generally that "for branded drugs, production had in the past shifted to Europe for tax reasons, but this is no longer so relevant. Such a high tariff [referring to the 200% figure] would be more of an issue for generic drugs though, where production is overseas for traditional cost of manufacturing reasons" - domestic Swiss production tends to be centred in the branded segment, which would then arguably be more akin to relocation to the US.
• In that context, our credit team does view recent US investment projects by Swiss pharmaceutical firms as significant.
• Leerink Partners meanwhile believe Tuesday's announcement by the US administration is net positive for the pharma industry “because tariffs will not be implemented immediately…and it is unclear if the administration will follow through in the future”, according to a note seen by CNBC.
• Details on the measures “will come at the end of the month,” Commerce Secretary Howard Lutnick said after the cabinet meeting (also via CNBC).

President Donald Trump on Tuesday threatened to impose up to 200% tariffs on pharma products “very soon”. However, the administration would “give people about a year, year and a half” to incentivize production relocalisation into the US, and Switzerland might get proprietary assurances on the sector in a US/SZ trade deal, limiting the potential impact of measures imposed by the US more generally. Swiss pharma equities saw some volatility this morning but remained within recent ranges - supporting the view of a limited impact.

• Remember that on July 4, Bloomberg wrote:  "The draft of a trade accord between the US and Switzerland contains a provision that the European country will receive preferred treatment in the ongoing national-security investigations to avoid tariffs on pharma exports, according to people familiar with the matter" but "the clause doesn't constitute a guarantee that Washington will hold off on putting tariffs on the industry".
• The Swiss government has agreed to that draft accord according to local news. There are "positive signs" but no agreement yet from the US, according to the reports.
• Swiss "pharmaceuticals, vitamins, diagnostics" exports were CHF122.1bln in the 12 months to May 2025 in nominal terms - that is around 43% of total Swiss exports during that time, or around 6.8% of GDP, while Swiss exports to the US (across products) were CHF58.4bln.

Large Outright Stoxx600 Put Trade:

• SXXP (19th Sep) 510p, bought for 3.20 in ~29.5k.