- Trump called on the US’s trading partners to provide offers for negotiations by Wednesday.
- The US president promised to double tariffs on steel and aluminium imports, raising fears of increased trade tensions.
- Data on Monday revealed that business activity in the US manufacturing sector dropped.
Equities edged higher on Monday amid hopes of progress in trade talks between the US and its trading partners. However, there was downward pressure after Trump promised to increase tariffs on steel and aluminium goods.
On Friday, Trump called on the US’s trading partners to provide offers for negotiations by Wednesday. More talks could result in trade deals that would further ease fears of a global trade war. However, he also promised to double tariffs on steel and aluminium imports. This put a cap on gains as it raised concerns about similar responses from affected countries that would lead to trade wars.
However, it also gave support to steel company stocks. Higher tariffs on these imports will mean increased demand for local goods. It could also mean increased local production.
Nevertheless, some experts believe it was a tactic to speed up trade negotiations, as the 90-day pause nears its end. Still, it also revealed that Trump was continuing his aggressive tariff campaign that could dampen investor confidence in the US economy.
US manufacturing activity (Source: ISM)
Already, the economy is showing signs of weakness due to these tariffs. Data on Monday revealed that business activity in the manufacturing sector dropped. The PMI came in at 48.5, well below forecasts of 49.3. Additionally, the imports index declined. The downbeat report hinted at softness that could put more pressure on the Fed to lower borrowing costs. However, at the moment, market participants expect the next cut in September. Moreover, they are pricing only two rate cuts this year.
Policymakers are still waiting patiently to see the impacts of Trump’s tariffs before making the next move.
This week, the US will release its crucial monthly employment report that will contain more policy clues. According to estimates, the economy added 130,000 new jobs in May. This would be a decline from the previous reading of 177,000. Meanwhile, the unemployment rate might hold steady at 4.2%.
A downbeat report would highlight economic weakness due to Trump’s tariffs. Therefore, it would increase Fed rate cut expectations. On the other hand, an upbeat report would ease recession worries and lower rate cut expectations.
