- Trump announced a 100% tariff on movies produced outside the US.
- The US ISM services PMI came in at 51.6, beating forecasts of 50.2.
- Market participants are looking forward to the FOMC policy meeting.
Equities ended lower on Monday, after Trump announced another tariff on films produced outside the US. The drop paused the recent rally on hopes of easing global trade tensions. However, upbeat US business activity data put a floor on further declines.
Trump surprised investors when he announced a 100% tariff on movies produced outside the US. As a result, film industry stocks collapsed, dragging down equities. Moreover, it became clear that the US president was moving forward with his tariff campaign. More tariffs might rekindle tensions with the US’s trade partners.
Last week, equities rallied as global trade tensions eased. The US had announced looming trade deals with India, Japan, and South Korea. At the same time, Trump noted progress towards talks with China. As a result, risk appetite rebounded. Negotiations with China would hasten the process of ending the trade war between the two countries. However, if trade tensions escalate instead, the sell-off at the start of April might return.
Furthermore, the equities rally got support from upbeat employment figures last week. On Friday, the US announced 177,000 new jobs in April, bigger than the forecast of 138,000. Meanwhile, the unemployment rate remained unchanged at 4.2%. The numbers eased recession worries, allowing stocks to climb. Trump’s tariffs in April caused a lot of concern about the economy. However, the impact has not been as bad as expected. Still, some experts believe the negative effects will be seen in the coming months.
US services PMI (Source: ISM)
Meanwhile, data on Monday revealed that business activity in the US services sector improved. The ISM Services PMI came in at 51.6, beating forecasts of 50.2. This was yet another sign that the economy was resilient. However, if Trump’s tariff campaign continues, the risk of a recession will keep rising.
Market participants are now looking forward to the FOMC policy meeting. Trump has been calling on Powell to cut interest rates. However, rate cut expectations have dropped with recent data. Traders are pricing a 36% chance of a cut in June. Meanwhile, they expect the Fed to keep interest rates unchanged during this week’s meeting. Still, the messaging at the meeting might reshape the outlook for rate cuts.
