- Trump’s tariff campaign in recent weeks has clouded the outlook for the global economy.
- US data revealed poor consumer sentiment, supporting fears of a US recession.
- The US Central Bank maintained its forecasts for rate cuts and cautious tone.
Interest futures rose to end the week bullish as poor risk appetite sent investors to the bond market. Economic uncertainty in recent weeks and looming Trump tariffs have hurt equities and Treasury yields.
Equities and yields (Source: Bloomberg)
Trump’s tariff campaign in recent weeks has clouded the outlook for the global economy. More than that, it has raised fears of a US recession that has caused panic among investors, sending equities and yields lower. Trump’s tariffs have ignited trade wars between the US and some of its major trading partners. This has threatened the flow of goods between these countries and will likely hurt their economies.
However, the US president is charging blindly at his goal, showing no fear of the impact on the economy. Trump has promised a reciprocal tariff in April that will escalate trade wars and further dim the outlook for the global economy. These tariffs will also likely increase the cost of goods in the US, driving inflation higher. Consequently, the Fed has chosen to maintain its cautious tone despite downbeat economic data.
Last Friday, US data revealed poor consumer sentiment, supporting fears of a US recession. Meanwhile, inflation expectations jumped. This week, retail sales data came in lower than expected, indicating soft consumer spending. According to the report, sales rose by 0.2% compared to expectations of a 0.6% increase.
These reports followed downbeat inflation and employment reports that would normally put pressure on the Fed to lower borrowing costs.
However, during the meeting on Wednesday, the US central bank maintained its forecasts for rate cuts and its cautious tone. Policymakers projected two rate cuts this year. Meanwhile, the uncertainty regarding Trump tariffs will likely mean caution and a shifting outlook. As Trump implements more tariffs, growth and inflation prospects will change. This has put most major central banks in the wait-and-see position.
Meanwhile, data on Thursday revealed a slight increase in US unemployment claims, indicating soft demand in the labor market. All focus will now shift to developments in the Trump administration and looming reciprocal tariffs. More tariff threats will push investors away from equities and into safer assets like bonds, boosting interest futures. On the other hand, if Trump’s stance softens, risk sentiment might improve.
