- Trump announced a 25% tariff on steel and aluminum imports to the US.
- Investors were awaiting Fed Chair Powell’s speech on Tuesday.
- Estimates show US consumer price pressures increased by 0.3% in January.
Equities ended higher on Monday after Trump announced new tariffs on steel and aluminum products, boosting the outlook for the US economy. Meanwhile, market participants were gearing up for Powell’s speech and the upcoming US inflation figures for clues on future monetary policy.
On Sunday, Trump announced a 25% tariff on steel and aluminum imports to the US. This brightened the outlook for companies dealing in these metals, boosting their socks. The duty will dampen demand for imports and increase consumption and production of local goods. This, in turn, will boost the economy, sending equities higher.
However, there is an ever-present risk that these tariffs will lead to trade wars that will be bearish for stocks. Trump has also proposed a reciprocal tariff on all imports that will affect many more countries. Trade wars would hurt risk sentiment and send investors to safer assets like bonds.
Meanwhile, investors were awaiting Fed Chair Powell’s speech on Tuesday, which might contain insights into future policy moves. Recent US political developments have shown that inflation might remain high for longer. New tariffs will translate to stronger economic demand and an increase in price pressure. At the last meeting, Powell noted that there was no rush to lower borrowing costs. The Fed Chair might maintain this tone.
At the same time, they are keeping an eye on the upcoming US consumer inflation report that will shape the outlook for rate cuts this year. According to analysts, consumer price pressures increased by 0.3% in January, slower than December’s increase of 0.4%. Meanwhile, the annual figure increased by 2.9%, similar to the previous reading.
If the actual figures come in above estimates, equities might drop on lower expectations for a Fed rate cut. On the other hand, if the numbers miss forecasts, rate-cut bets will increase, boosting equities. Lower borrowing costs improve the business environment, allowing businesses to grow.
Monthly NFP (Source: US Bureau of Labor Statistics)
On Friday, the US released a mixed nonfarm payrolls report, with slower job growth and softer unemployment rates. The economy added 143,000 jobs compared to estimates of 163,000. However, the unemployment rate unexpectedly eased from 4.1% to 4.0%, overshadowing the slower job growth. Investors are still betting on a cautious Fed.
